Identification of Relevant Costs and variable operating cost consist of gasoline, oil, tires and maintenance fees, accounting help College Paper Lab | collegepaperslab.com

Business Finance

Identification of Relevant Costs and variable operating cost consist of gasoline, oil, tires and maintenance fees, accounting help College Paper Lab | collegepaperslab.com

A university student 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 costs                    $0.14 per mile

The variable operating cost consist of gasoline, oil, tires and maintenance fees. This student estimates that, at her current rate of usage, the car will have zero resale value in the next five years, so the annual straight-line depreciation is $1,600. The car is kept in garage for a monthly fee.

Question: If the student drove 10,000 miles. Compute the average a cost per mile of owning and operating the car. Do some analysis that relevant about the decision that the student should take either own a car or rent a car, if the student want to buy a new car with the same operating costs but not for the insurance and automobile tax, what is the relevant in estimating the incremental cost of owning the more expensive car?

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