Kristen Lu purchased a used automobile for $8,000 at the beginning of last year and incurred the following operating costs: Depreciation ($8,000 5 years) $1,600 Insurance $ 1,200 Garage rent $ 360 Automobile tax and license $ 40 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 $1,600. The car is kept in a garage for a monthly fee Required: 1. Kristen drove the car 10,000 miles last year, Compute the average cost per mile of owning and operating the car. (Round your answers to 2 decimal places.) Average fixed cost per mile Variable operating cost per mile Average cost per mile $ 0.00 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.) Variable operating costs 2 Depreciation 2 Automobile tax 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 $1,600. The car is kept in a garage for a monthly fee Required: 1. Kristen drove the car 10,000 miles last year. Compute the average cost per mile of owning and operating the car. (Round your answers to 2 decimal places.) Average fond cost per mile Variable operating cost per mile Average cost per mile $ 0.00 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.) Variable operating costs Depreciation Automobile tax 7 License costs insurance costs The Scottie Sweater Company produces sweaters under the "Scottie" label. The company buys raw wool and processes it into wo yarn from which the sweaters are woven. One spindle of wool yarn is required to produce one sweater. The costs and revenues associated with the sweaters are given below: Per Sweater $ 30.00 Selling price Cost to manufacturer Raw materials Buttons, thread, lining Wool yarn Total raw materials Direct labor Manufacturing overhead Manufacturing profit (los) $. 2.00 16.00 18.00 5.80 8.70 32.50 $ (2.50) Originally, all of the wool yarn was used to produce sweaters, but in recent years a market has developed for the wool yarn itself. The yarn is purchased by other companies for use in production of wool blankets and other wool products. Since the development of the market for the wool yarn, a continuing dispute has existed in the Scottie Sweater Company as to whether the yarn should be sold simply as yarn or processed into sweaters. Current cost and revenue data on the yarn are given below: Per Spindle of Yarn Selling price $ 20.00 Cost to manufacturer Raw materials (raw wool) $ 7.00 Direct labor 3.60 Manufacturing overhead 5.40 16.00 Manufacturing profit $ 4.00 The market for sweaters is temporarily depressed, due to unusually warm weather in the western states where the sweaters are sold. This has made it necessary for the company to discount the selling price of the sweaters to $30 from the normal $40 price. Since the market for wool yarn has remained strong, the dispute has again surfaced over whether the yarn should be sold outright rather than processed into sweaters. The sales manager thinks that the production of sweaters should be discontinued; she is upset about having to sell sweaters at a $2.50 loss when the yarn could be sold for a $4.00 profit. However, the production superintendent does not want to close down a large portion of the factory. He argues that the company is in the sweater business, not the yarn business, and the company should focus on its core strength. processes into sweaters. Ine sales manager thinks that the production or sweaters snouia de discontinuea; sne is upset about naving to sell sweaters at a $2.50 loss when the yarn could be sold for a $4.00 profit. However, the production superintendent does not want to close down a large portion of the factory. He argues that the company is in the sweater business, not the yarn business, and the company should focus on its core strength. All of the manufacturing overhead costs are fixed and would not be affected even if sweaters were discontinued. Manufacturing overhead is assigned to products on the basis of 150% of direct labor cost. Materials and direct labor costs are variable. Required: 1. What is the financial advantage (disadvantage) of further processing one spindle of wool yarn into a sweater? 2. Would you recommend that the wool yarn be sold outright or processed into sweaters? 3. What is the lowest price that the company should accept for a sweater? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 What is the financial advantage (disadvantage) of further processing one spindle of wool yarn into a sweater? (Round your answer to 2 decimal places.) Required Required 2 > Required 1 Required 2 Required 3 Would you recommend that the wool yarn be sold outright or processed into sweaters? O sold outright Processed into sweaters Required 1 Required 2 Required 3 What is the lowest price that the company should accept for a sweater? (Round your answer to 2 decimal places.) Lowest price