Exercise 11-14 (Algo) Identification of Relevant Costs [LO11-1]

Kristen Lu purchased a used automobile for $14,500 at the beginning of last year and incurred the following operating costs:

Depreciation ($14,500 5 years)	$ 2,900
Insurance	$ 1,500
Garage rent	$ 800
Automobile tax and license	$ 400
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 $2,900. The car is kept in a garage for a monthly fee.

Required:

1. Kristen drove the car 14,000 miles last year. Compute the average cost per mile of owning and operating the car. (Round your answers to 2 decimal places.)

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? (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. Any boxes left with a question mark will be automatically graded as incorrect.)

(check all that apply)

Variable operating costs

Depreciationunanswered

Automobile taxunanswered

License costsunanswered

Insurance costs

\begin{tabular}{|l|l|} \hline Average fixed cost per mile & \\ \hline Variable operating cost per mile & \\ \hline Average cost per mile & \\ \hline \hline \end{tabular}