Question

Larry estimates that the costs of insurance, license, and depreciation to operate his car total $320 per month and that the gas, oil, and maintenance costs are 14 cents per mile. Larry also estimates that, on average, he drives his car 1,400 miles per month.

Required:
a. How much cost would Larry expect to incur during April if he drove the car 1,529 miles? (Round your answer to 2 decimal places.)
b. Would it be meaningful for Larry to calculate an estimated average cost per mile for a typical 1,400-mile month? Yes or No

Answer 1

a) $534.06

b) NO

Step-by-step explanation:

Given:

costs of insurance, license, and depreciation to operate his car = $320 per month

gas, oil, and maintenance costs = 14 cents per mile = $0.14 per mile

Now,

Fixed cost = $320 per month

Variable cost = $0.14 per mile

Therefore,

total cost = Fixed cost + Variable cost

= $320 + $0.14 × Number of miles driven

a) Total number of miles driven = 1,529

Thus,

total cost = $320 + $0.14 × 1,529

= $320 + $214.06

= $534.06

b) Since, $320 per month is the fixed cost, the fixed cost per mile will decrease with the increase in number of miles driven.

therefore, if Larry drives less than 1,400 miles, then the actual cost will be more than the cost based on a predetermined rate of cost

Therefore, it would not be meaningful for Larry to calculate an estimated average cost per mile for a typical 1,400-mile month