Kristen Lu purchased a used automobile for $8,350 at the beginning of last year and incurred the following operating costs: Depreciation ($8,350 ÷ 5 years)$ 1,670 Insurance$ 900 Garage rent$ 500 Automobile tax and license$ 230 Variable operating cost$ 0.11per mile The variable operating cost consists of gasoline, oil, tires, maintenance, and repairs. Kristen estimates that, at her current rate of usage, the car will have zero resale value in five years, so the annual straight-line depreciation is $1,670. The car is kept in a garage for a monthly fee. Required:1. Kristen drove the car 11,000 miles last year. Compute the average cost per mile of owning and operating the car. (Round your answers to 2 decimal places.) **Case Study: Calculating Automobile Operating Costs**Kristen Lu purchased a used automobile for $8,350 at the beginning of last year and incurred the following operating costs:- **Depreciation ($8,350 ÷ 5 years):** $1,670- **Insurance:** $900- **Garage rent:** $500- **Automobile tax and license:** $230- **Variable operating cost:** $0.11 per mileThe variable operating cost consists of gasoline, oil, tires, maintenance, and repairs. Kristen estimates that, at her current rate of usage, the car will have zero resale value in five years, so the annual straight-line depreciation is $1,670. The car is kept in a garage for a monthly fee.**Required:**1. Kristen drove the car 11,000 miles last year. Compute the average cost per mile of owning and operating the car. *(Round your answers to 2 decimal places.)*- **Average fixed cost per mile:**- **Variable operating cost per mile:**- **Average cost per mile:**

Variable Cost is that type of cost which varies with the change in the volume of activity. Variable Cost remain same, at per unit level. Fixed Cost remains fixed irrespective of the change in the volume of the activity. Fixed Cost remain same, at Total Cost level.Computation of Total Fixed cost for the year Particulars Amount ($) Depreciation 1670 Insurance 900 Garage Rent (It is assumed that the given rent is for the whole year) 500 Automobile Tax and License 230 Total Fixed Cost 3300 (a) Fixed Cost per mile = Total Fixed Cost / Total Miles = $ 3300 / 11000 = $ 0.3 (b) Variable Operating cost per mile = $ 0.11 (given in the question) (c) Average Cost per Mile = Fixed Cost per mile + Variable Operating cost per mile = $ 0.3 + $ 0.11 = $ 0.41 Alternative: If the given Garage Rent is monthly, then Annual Rent will be $ 6000 (i.e. $ 500 x 12). Accordingly Total Fixed Cost Will be $ 8800 per year. In that case, Answers would be as follows: (a) Fixed Cost per mile = Total Fixed Cost / Total Miles = $ 8800 / 11000 = $ 0.8 (b) Variable Operating cost per mile = $ 0.11 (given in the question) (c) Average Cost per Mile = Fixed Cost per mile + Variable Operating cost per mile = $ 0.8 + $ 0.11 = $ 0.91