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Kristen Lu purchased a used automobile for $21,500 at the
beginning of last year and incurred the following operating
costs:

 

 

 

  Depreciation ($21,500 ÷ 5 years)

$4,300            

  Insurance

$2,300
           

  Garage rent

$1,200           

  Automobile tax and license

$600
             

  Variable operating cost

$0.11 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 $4,300. The car is kept
in a garage for a monthly fee.

 

Requirement 1:

 

Kristen drove the car 21,000 miles last year. Compute the
average cost per mile of owning and operating the car.
(Round your answer to 2 decimal places. Omit the “$” sign
in your response.)

 

  Average cost per mile

 

 

Requirement 2:

 

Kristen 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?

 

  Variable operating costs

  Depreciation

  Automobile tax

  License costs

  Insurance costs

 

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