Question

Kristen Lu purchased a used automobile for $8,000 at the beginning of last year and incurred the following operating costs: Depreciation ($8,000 ÷ 5 years) $1,600 Insurance $1,200 Garage rent $360 Automobile tax and license $40 Variable operating cost $0.14 per 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 $1,600. The car is kept in a garage for a monthly fee. Kristen drove the car 10,000 miles last year. Compute the average cost per mile of owning and operating the car. (Round your answers to 2 decimal places.)

Answer 1

Answer:

$0.46

Explanation:

purchased a used automobile = $8,000

Depreciation = $1,600

Insurance = $1,200

Garage rent = $360

Automobile tax and license = $40

Variable operating cost = $0.14

Kristen drove the car = 10,000 miles last year

$Fixed\ cost\ per\ mile=\frac{Depreciation+Insurance+Garage\ rent+Automobile\ tax\ and\ license}{Kristen\ drove\ the\ car}$

$Fixed\ cost\ per\ mile=\frac{1,600+1,200+360+40}{10,000}$

                                          = $0.32

Average cost per mile = Variable operating cost + Fixed cost per mile

                                      = $0.14 + $0.32

                                      = $0.46

Answer 2

If Kristen drove the car 10,000 miles last year. The average cost per mile of owning and operating the car is $0.46.

Average cost

First step

Depreciation $1,600

Insurance  $1,200

Garage rent $360

Automobile tax and license $40

Total fixed cost $3,200

Second step

Average fixed cost=3,200/10,000

Average fixed cost=$0.32

Variable opoerating cost=$01.4

Average cost per mile $0.46

($0.32+$0.14)

Inconclusion the average cost per mile of owning and operating the car is $0.46.

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