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Question: Melissa McKenzie purchased a second-hand car off Trade Me at the beginning of last year for $10 000. During the year she has owned the car, she has incurred the following expenses.
Depreciation 2 000
Insurance 960
Garage rent 480
Warrant of Fitness fees 60
Variable operating costs/km 0.08
Variable operating costs consist of fuel, oil, tyres, maintenance and repairs. Melissa expects the car to have zero resale value after using it for another 5 years. She has decided to depreciate her car using the straight-line depreciation method over the full 5 years. The car is kept in a garage for a $40 a month fee.
Required: Identify three characteristics of relevant costs and outline why each characteristic is important.
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