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Kristen Lu purchased a used automobile for $23,300 at the beginning of last year and incurred the following operating costs: Depreciation ($23,300 + 5 years) $4,660 Insurance $2,400 Garage rent $1,300 Automobile tax and license $640 Variable operating cost $0
Kristen Lu purchased a used automobile for $23,300 at the beginning of last year and incurred the following operating costs:
| Depreciation ($23,300 + 5 years) | $4,660 |
| Insurance | $2,400 |
| Garage rent | $1,300 |
| Automobile tax and license | $640 |
| Variable operating cost | $0.07 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 $4,660. The car is kept in a garage for a monthly fee.
Kristen drove the car 18,000 miles last year. Compute the average cost per mile of owning and operating the car. (Round your answers to 2 decimal places.)
Expert Solution
Calculating the Average cost per mile:
Fixed Cost = Depreciation + Insurance + Garage Rent + Automobile Tax & License
Fixed Cost = 4,660 + 2,400 + 1,300 + 640
Fixed Cost = $ 9,000
Variable Cost = 0.07 per mile
Variable cost = 18,000 x 0.07 = $ 1,260
Total Cost = 9,000 + 1,260 = 10,260
Total distance = 18,000 miles
Average cost per mile = 10,260 / 18,000 = 0.57 per mile
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