You have gathered the following vehicle costs: Vehicle Costs Annual depreciation $ 2,800 Annual mileage 16,900 Current year’s loan interest $ 660 Miles per gallon 24 Insurance $ 1,510 Average gasoline price $ 4.65 per gallon License and registration fees $ 68 Oil changes/repairs $ 443 Parking/tolls $ 477 (a) Calculate the annual variable and fixed costs of the vehicle. (Round answer to nearest whole number.) (b) Compute the operating cost per mile. (Enter your answer in cents rounded to 1 decimal place.)
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
You have gathered the following vehicle costs:
| Vehicle Costs | |||||||
| Annual |
$ | 2,800 | Annual mileage | 16,900 | |||
| Current year’s loan interest | $ | 660 | Miles per gallon | 24 | |||
| Insurance | $ | 1,510 | Average gasoline price | $ | 4.65 | per gallon | |
| License and registration fees | $ | 68 | Oil changes/repairs | $ | 443 | ||
| Parking/tolls | $ | 477 | |||||
(a) Calculate the annual variable and fixed costs of the vehicle. (Round answer to nearest whole number.)
(b) Compute the operating cost per mile. (Enter your answer in cents rounded to 1 decimal place.)
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