Relevant Costs Solutiosn.doc

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Department
Business
Course
BBUS 2541
Professor
Tony Bell
Semester
Winter

Description
120minutesCase1Case2NotNotItemRelevantRelevantRelevantRelevantaSalesrevenueXXbDirectmaterialsXXcDirectlabourXXdVariablemanufacturingoverheadXXeDepreciationModelB100machineXXfBookvalueModelB100machineXXgDisposalvalueModelB100machineXXhMarketvalueModelB300machinecostXXiDepreciationModelB300machineXXjFixedmanufacturingoverheadXXkVariablesellingexpenseXXlFixedsellingexpenseXXmGeneraladministrativeoverheadXX230minutes1TherelevantcostsofahuntingtripwouldbeTravelexpense100kilometres007perkilometre7Shotgunshells20OnefifthofOldGrandad8Total35ThisanswerassumesthatBillwouldnotbedrinkingthefifthofOldGrandadanywayItalsoassumesthattheresalevaluesofthecamperpickuptruckandboatarenotaffectedbytakingonemorehuntingtripThemoneylostinthepokergameisnotrelevantbecauseBillwouldhaveplayedpokerevenifhedidnotgohuntingHeplayspokereveryweekendTheothercostsaresunkatthepointatwhichthedecisionismadetogoonanotherhuntingtrip2IfBillgetsluckyandbagsanothertwoducksallofhiscostsarelikelytobeaboutthesameastheywereonhislasttripThereforeitreallydoesnotcosthimanythingtoshootthelasttwoducksexceptpossiblythecostsforextrashotgunshellsThecostsarereallyincurredinordertobeabletohuntducksandwouldbethesamewhetheronetwothreeoradozenduckswereactuallyshotAllofthecostswiththepossibleexceptionofthecostsoftheshotgunshellsarebasicallyfixedwithrespecttohowmanyducksareactuallybaggedduringanyonehuntingtrip3InadecisionofwhethertogiveuphuntingentirelymoreofthecostslistedbyJohnarerelevantIfBilldidnothunthewouldnotneedtopayforgasoilandtiresshotgunshellsthehuntinglicenseandthefifthsofOldGrandadInadditionhewouldbeabletosellhiscamperequipmentboatandpossiblypickuptrucktheproceedsofwhichwouldbeconsideredrelevantinthisdecisionTheoriginalcostsoftheseitemsarenotrelevantbuttheirresalevaluesarerelevant
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