Question

Annual depreciation $ 3,000 Annual mileage 14,640 Current year's loan interest $ 710 Miles per gallon 24 Insurance $ 860 License and registration fees $ 125 Average gasoline price $ 3.50 per gallon Oil changes/repairs $ 730 Parking/tolls $ 660 a. Calculate total annual operating cost of the motor vehicle.

Answer 1

Answer:

$8,220

Explanation:

The computation of the total annual operating cost is shown below:

= Fixed cost + variable cost

where,

Fixed cost = Annual depreciation + Annual loan interest + insurance + license and registration fees

= $3,000 + $710 + $860 + $125

= $4,695

And, the variable cost

= Gasoline expense + Parking or tolls + Oil changes or repairs

where,

Gasoline expense is

= (Annual mileage ÷ miles per gallon) × average price per gallon

= ($14,640 ÷ 24) × $3.50 per gallon

= $2,135

Parking or tolls = $660

And, the Oil changes or repairs is $730

So, the variable cost is

= $2,135 + $660 + $730

= $3,525

So, the total annual operating cost is

= $4,695 + $3,525

= $8,220

Therefore, The total annual operating cost is a mix of fixed cost and the variable cost