Identification of Relevant Costs

Samantha Ringer purchased a used automobile for $10,000 at the beginning of last year and incurred the following operating costs:

 

           

 

  Depreciation ($10,000 ÷ 5 years)       $2,000 

  Insurance        $960 

  Garage rent    $480 

  Automobile tax and license      $60 

  Variable operating cost           8¢ per mile 

 

The variable operating costs consist of gasoline, oil, tires, maintenance, and repairs. Samantha 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 $2,000. The car is kept in a garage for a monthly fee.

 

Required:

1. Samantha drove the car 10,000 miles last year. Compute the average cost per mile of owning and operating the car. (Round your intermediate and final answer to 2 decimal places. Omit the “$” sign in your response.)

 

  Average cost per mile $ 

 

2. Samantha is unsure about whether she should use her own car or rent a car to go on an extended cross-country trip for two weeks during spring break. What costs above are relevant in this decision? (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer.)

                        

            Variable operating costs

            Depreciation

            Automobile tax

            License costs

            Insurance costs