Unit F: Finance

Calculating the Cost of Operating a Vehicle

The total cost of operating a vehicle can be determined by adding the fixed costs and variable costs. It is useful to estimate the operating cost of a vehicle and create a budget. A budget helps manage the operating expenses of a vehicle to avoid overspending.

Example 3

Craig is estimating the cost of his car for the upcoming year. He records the estimated costs of operating his vehicle.

Expense	Estimated Yearly Cost Including Tax
oil change and replace filter	$180.00
replace windshield wipers	$20.00
insurance	$2 500.00
registration	$70.00
unexpected repairs	$1 000.00
vehicle loan	$6 312.00
fuel

The fuel consumption of Craig's car is 5.9 L/100 km. Craig estimates that he will drive 13 000 km next year. Calculate the cost of fuel if the price of gas is $1.23/L. Insert this estimated cost of fuel into the table.
Calculate the total fixed costs.
Calculate the total variable costs.
Calculate the total cost of operating the vehicle for a year.
How much money should Craig set aside each month to pay for his vehicle expenses?

Solutions

\begin{array}{rcl} cost & = & fuel price \times fuel consumption \times 13 000 km \\ = & $ 1.23 / L \times \frac{5.9 L}{100 km} \times 13 000 km \\ = & $ 943.41 \end{array}

The cost of the fuel is $943.41.

Expense	Estimated Yearly Cost Including Tax
oil change and replace filter	$180.00
replace windshield wipers	$20.00
insurance	$2 500.00
registration	$70.00
unexpected repairs	$1 000.00
vehicle loan	$6 312.00
fuel	$$ 943.41$

The fixed costs include the insurance, registration, and vehicle loan. Add these values to find the total fixed costs.

$\begin{array}{rcl} fixed cost & = & insurance + registration + vehicle loan \\ = & $ 2 500.00 + $ 70.00 + $ 6 312.00 \\ = & $ 8 882.00 \end{array}$

The fixed costs are $8 882.00.
The variable costs include the oil change and filter replacement, replacing windshield wipers, unexpected repairs, and fuel. Add these values to find the total variable costs.

$\begin{array}{rcl} variable costs & = & oil change and replace filter + replace windshield wipers + unexpected repairs + fuel \\ = & $ 180.00 + $ 20.00 + $ 1 000.00 + $ 943.41 \\ = & $ 2 143.41 \end{array}$

The variable costs are $2 143.41.
$\begin{array}{rcl} total cost & = & fixed costs + variable costs \\ = & $ 8 882.00 + $ 2 143.41 \\ = & $ 11 025.41 \end{array}$

The total cost is $11 025.41.
To find the monthly cost, divide the yearly cost by 12.

$\begin{array}{rcl} monthly cost & = & \frac{$ 11 025.41}{12} \\ = & $ 918.78 \end{array}$

Craig should set aside $918.78 each month to pay for car expenses.

Example 4

Melissa has a budget of $700.00/month for a car. The estimated expenses for the car she is considering are:

Cost	Estimated Cost Including Tax
insurance	$150.00
maintenance	$200.00
registration	$5.00
fuel	$100.00

Calculate the estimated monthly operating expenses for the car.
Based on Melissa's budget of $700.00 per month for a car, calculate the maximum possible car payment.

Solutions

The estimated monthly operating expenses for the vehicle are:

$\begin{array}{rcl} monthly operating expenses & = & insurance + maintenance + regisration + fuel \\ = & $ 150.00 + $ 200.00 + $ 5.00 + $ 100.00 \\ = & $ 455.00 \end{array}$

The estimated operating expenses for the car are $455.00.
Melissa has budgeted $700.00/month for a car. The maximum monthly payment is equal to the total cost of the car less the operating expenses.

$\begin{array}{rcl} car loan total monthly cost - monthly operating expenses & = & $ 700.00 - $ 455.00 \\ = & $ 245.00 \end{array}$

Melissa should buys a car that has a monthly payment of $245.00 or lower.