Drill 28 ·
AP Business with Personal Finance: Household Decision Drill 28 is a practice drill. It contains 5 original questions created by Brian Stewart, a Barron's test prep author with over 20 years of tutoring experience.
A personal-finance decision drill in which a household applies decision criteria to three used cars using total cost of ownership; it uses an invented company and original figures.
Tobias Renner is buying a used car and has narrowed the choice to three. He plans to keep the car for 3 years. To compare them fairly he looks at total cost of ownership, which is the sticker price plus the estimated fuel and repair costs over the 3 years, not just the sticker price.
Tobias Renner: Three Used Cars (dollars)
| Car | Sticker price | Fuel + repairs over 3 years | Total cost of ownership |
|---|---|---|---|
| Car A | 9,000 | 6,000 | 15,000 |
| Car B | 11,000 | 3,000 | 14,000 |
| Car C | 8,000 | 7,500 | 15,500 |
Question 1. Q1. Which car has the lowest sticker price?
Explanation: The answer is C (Car C). Car C's sticker price is 8,000, which is below Car A's 9,000 and Car B's 11,000. A and B name cars with higher sticker prices. D is wrong because the three sticker prices differ.
Question 2. Q2. Comparing the cars on sticker price plus fuel and repairs, rather than on sticker price alone, is an example of which idea?
Explanation: The answer is A (total cost of ownership). Total cost of ownership adds the ongoing costs of using an item to its purchase price, which is exactly what the table does. B is wrong because opportunity cost is the value of a forgone alternative, not the sum of an item's own costs. C names money already spent that cannot be recovered. D is a business income measure unrelated to comparing personal purchases.
Question 3. Q3. How much more does Car C cost than Car B over the 3 years, measured by total cost of ownership?
Explanation: The answer is D (1,500 dollars). Car C's total cost of ownership is 15,500 and Car B's is 14,000, so the difference is 15,500 minus 14,000, which is 1,500. A, B, and C are smaller differences that do not match the two totals in the table.
Question 4. Q4. Why does Car C have the lowest sticker price but not the lowest total cost of ownership?
Explanation: The answer is B. Car C starts cheapest at 8,000 but its fuel and repairs over 3 years are 7,500, the highest of the three, and that pushes its total to 15,500, the highest total. A is false because Car C's sticker price is the lowest, not the highest. C misstates the concept; total cost of ownership includes the sticker price. D is wrong because Car C, not Car B, has the lowest sticker price.
Question 5. Q5. Tobias's stated goal is the lowest total cost of ownership over the 3 years. Which car should he choose?
Explanation: The answer is B. The criterion is the lowest total cost of ownership, and Car B's total of 14,000 is below Car A's 15,000 and Car C's 15,500, so Car B is the better choice under that criterion. A picks a car on the wrong basis. C uses sticker price, which is not the stated goal. D names the wrong car as lowest; Car A's total is 15,000, not the lowest.