Answer: $0.51
Kristen Lu purchased a used automobile for $25,950 at the beginning of last year and incurred the following operating costs:
Depreciation ($25,950 ÷ 5 years) $5,190
Insurance $2,700
Garage rent $1,400
Automobile tax and license $710
Variable operating cost $0.11 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 $5,190. The car is kept in a garage for a monthly fee.
Explanation:
To calculate the fixed cost per mile, calculate the total fixed cost and divide by the number of miles (25000).
The total fixed cost combines all the cost that do not change depending on the level of usage. These costs do not reduce if Kristen uses her car less or increase if she uses her car more. The variable cost is the opposite of this.
Total fixed cost = $5,190 + $2,700 + $1,400 + $710 = 10,000
Fixed cost per mile = 10000/25000 = $0.40
Variable Operating Cost/Mile = $0.11
Average Operating Cost/Mile = $0.51
