Question

2. Victor Larson had fixed costs totaling $2,805.60 last year, not

including depreciation. His variable costs totaled $1,870.40. His
3-year-old automobile cost $24,890.00 new and is now worth
$12,290.00. Larson drove his vehicle 16,700 miles last year. What
was his depreciation? What was his cost per mile?

Answer 1

To calculate depreciation, subtract the current vehicle value from the purchase price, resulting in $12,600. The total annual cost, including fixed and variable costs plus depreciation, is $17,276. Dividing this by the miles driven gives a cost per mile of $1.035.

Step-by-step explanation:

The student's question pertains to the calculation of depreciation and cost per mile for Victor Larson's automobile. To calculate depreciation, subtract the current value of the vehicle from its original purchase price. Victor's car was initially bought for $24,890 and is now worth $12,290. Thus, the depreciation is:

Depreciation = Original Purchase Price - Current Value
Depreciation = $24,890.00 - $12,290.00
Depreciation = $12,600.00

To find the cost per mile, add the fixed costs, variable costs, and depreciation, then divide by the total miles driven. The total costs, including depreciation, are:

Total Costs = Fixed Costs + Variable Costs + Depreciation
Total Costs = $2,805.60 + $1,870.40 + $12,600.00
Total Costs = $17,276.00

Now, the cost per mile is calculated as:

Cost per Mile = Total Costs / Total Miles Driven
Cost per Mile = $17,276.00 / 16,700 miles
Cost per Mile = $1.035 (rounded to three decimal places)