In-class practice problem: Identifying Relevant Costs and Benefits Cynthia is currently a student in an MSM program in Boston and would like to visit a friend in New York City over the weekend. She is trying to decide whether to drive or take the train. Because she is on a tight budget, she wants to carefully consider the costs of the two alternatives. If one alternative is far less expensive than the other, that may be decisive in her choice. By car, the distance between her apartment in Boston and her friend's apartment in New York City is 230 miles. Cynthia has compiled the following list of items to consider:

Required: A. For each cost item(a) to (m), indicate and explain whether that cost is relevant or not. B. Help Cynthia to decide whether she should drive or take the train by comparing the total relevant costs of these two alternatives.

Automobile Costs Cost per Mile (based on 10,000 miles Annual Cost of Fixed Items per year) Item (a) Annual straight-line depreciation on car [($24,000 original cost $10,000 estimated resale value in 5 years)/5 years]... .. (b) Cost of gasoline ($2.40 per gallon 24 miles per gallon)... ... (c) Annual cost of auto insurance and license. (d) Maintenance and repairs. . ... (e) Parking fees at school ($45 per month x 8 months). $2,800 $0.280 0.100 $1,380 O.138 0.065 $360 0.036 Total average cost per mile.. $0.619 (f) Additional Data Item (g) Reduction in the resale value of car due solely to wear and tear. ... (h) Cost of round-trip train ticket from Boston to New York City.... (i) Benefit of relaxing and being able to study during the train ride rather than having to drive... . . Cost of putting the dog in a kennel while gone.... (k) Benefit of having a car available in New York City.. .. Hassle of parking the car in New York City $0.080 per mile $114 ? $80 ? (1) (m) Cost of parking the car in New York City ? $25 per day Based on a case in "Managerial Accounting" by Garrison Noreen and Brewer