Answer :
Sure, let's address each part of the question in detail.
### a) Classifying the Given Costs Using the Tabular Template
To classify the costs, we will use the categories: Fixed Costs and Variable Costs.
Fixed Costs are costs that do not change regardless of whether Jimmy decides to buy the new car or not.
Variable Costs are costs that will change based on Jimmy's decision to buy the new car.
Here is the tabular classification of costs:
| Costs | Amount |
|-------------------------------------------------|---------|
| Fixed Costs | |
| Insurance - old car (annually) | [tex]$2,400 | | Parking at apartment (annually before increase) | $[/tex]600 |
| Advertising to sell old car | [tex]$100 | | Variable Costs | | | 2016 Corolla purchase price | $[/tex]12,000 |
| Insurance - new car (annually) | [tex]$3,600 | | Parking at apartment (annually after increase) | $[/tex]800 |
| Sale proceeds of old car | -[tex]$9,000 | ### b) Explanation of Choices and Specific Amounts #### Fixed Costs 1. Insurance - old car (annually): - Amount: $[/tex]2,400
- Explanation: This cost is relevant only if Jimmy keeps the old car. It's a fixed expense as long as he owns the old car.
2. Parking at apartment (annually before increase):
- Amount: [tex]$600 - Explanation: This is the parking cost if Jimmy keeps the old car. Although the parking fee will increase, the current amount is considered fixed for this classification. 3. Advertising to sell old car: - Amount: $[/tex]100
- Explanation: This is a one-time cost incurred to sell the old car. It's fixed and necessary only if Jimmy decides to sell the old car.
#### Variable Costs
1. 2016 Corolla purchase price:
- Amount: [tex]$12,000 - Explanation: This is the amount Jimmy needs to purchase the new car. It is a variable cost since it only applies if he decides to buy the new car. 2. Insurance - new car (annually): - Amount: $[/tex]3,600
- Explanation: This is the annual insurance cost for the new car. It changes with the decision to buy the new car.
3. Parking at apartment (annually after increase):
- Amount: [tex]$800 - Explanation: The parking fee will increase to $[/tex]800 irrespective of the car Jimmy owns. The difference in parking cost ([tex]$200) is considered variable for this analysis. 4. Sale proceeds of old car: - Amount: -$[/tex]9,000
- Explanation: This is the amount Jimmy will receive from selling the old car. It reduces the overall cost and is only applicable if he decides to sell the old car.
Explanation for Omitted Costs:
- Gas consumption (annually):
- This cost is omitted because it is assumed to be the same for both the old and new Corolla. Since it remains constant regardless of Jimmy's decision, it does not affect the comparative cost analysis and hence is irrelevant to this specific decision-making process.
By classifying and understanding the amounts with the associated reasoning, Jimmy can make an informed decision about whether to purchase the 2016 Corolla or continue with his current car.
### a) Classifying the Given Costs Using the Tabular Template
To classify the costs, we will use the categories: Fixed Costs and Variable Costs.
Fixed Costs are costs that do not change regardless of whether Jimmy decides to buy the new car or not.
Variable Costs are costs that will change based on Jimmy's decision to buy the new car.
Here is the tabular classification of costs:
| Costs | Amount |
|-------------------------------------------------|---------|
| Fixed Costs | |
| Insurance - old car (annually) | [tex]$2,400 | | Parking at apartment (annually before increase) | $[/tex]600 |
| Advertising to sell old car | [tex]$100 | | Variable Costs | | | 2016 Corolla purchase price | $[/tex]12,000 |
| Insurance - new car (annually) | [tex]$3,600 | | Parking at apartment (annually after increase) | $[/tex]800 |
| Sale proceeds of old car | -[tex]$9,000 | ### b) Explanation of Choices and Specific Amounts #### Fixed Costs 1. Insurance - old car (annually): - Amount: $[/tex]2,400
- Explanation: This cost is relevant only if Jimmy keeps the old car. It's a fixed expense as long as he owns the old car.
2. Parking at apartment (annually before increase):
- Amount: [tex]$600 - Explanation: This is the parking cost if Jimmy keeps the old car. Although the parking fee will increase, the current amount is considered fixed for this classification. 3. Advertising to sell old car: - Amount: $[/tex]100
- Explanation: This is a one-time cost incurred to sell the old car. It's fixed and necessary only if Jimmy decides to sell the old car.
#### Variable Costs
1. 2016 Corolla purchase price:
- Amount: [tex]$12,000 - Explanation: This is the amount Jimmy needs to purchase the new car. It is a variable cost since it only applies if he decides to buy the new car. 2. Insurance - new car (annually): - Amount: $[/tex]3,600
- Explanation: This is the annual insurance cost for the new car. It changes with the decision to buy the new car.
3. Parking at apartment (annually after increase):
- Amount: [tex]$800 - Explanation: The parking fee will increase to $[/tex]800 irrespective of the car Jimmy owns. The difference in parking cost ([tex]$200) is considered variable for this analysis. 4. Sale proceeds of old car: - Amount: -$[/tex]9,000
- Explanation: This is the amount Jimmy will receive from selling the old car. It reduces the overall cost and is only applicable if he decides to sell the old car.
Explanation for Omitted Costs:
- Gas consumption (annually):
- This cost is omitted because it is assumed to be the same for both the old and new Corolla. Since it remains constant regardless of Jimmy's decision, it does not affect the comparative cost analysis and hence is irrelevant to this specific decision-making process.
By classifying and understanding the amounts with the associated reasoning, Jimmy can make an informed decision about whether to purchase the 2016 Corolla or continue with his current car.
