Chapter 11, Problem 14E

Identification of Relevant Costs
Kristen Lu purchased a used automobile for $8,000 at the beginning of last year and incurred the following costs:

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, 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 war Compute the average cost per mile of owning and operating the car.
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 That costs above are relent m this decision? Explain.
3. Kristen is thinking about buying au expensive spoils car to replace the car she bought last year. She would drive the same number of miles regardless of which car she owns and would rest the same parking space The sports car’s variable operating costs would be roughly the same as the variable operating costs of her old car. However, her insurance and automobile tax and license costs would go up. What costs are relevant in estimating the incremental cost of owning the more expensive car? Explain.