Because their three adult children have all at last left home, Joseph and Audrey Peck recently moved

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Because their three adult children have all at last left home, Joseph and Audrey Peck recently moved to a smaller house. Joseph owns a riding lawnmower he bought three years ago to take care of the former house's huge yard; it should last another five years. With the new house's smaller yard, Joseph thinks he could hire someone to cut his grass for $800 per year. He wonders if this option is financially sound. Relevant information follows:
Riding Lawn Mower Amount
Original cost............................$5,400
Accumulated depreciation.............1,800
Current market value...................2,600
Estimated salvage value.....................0
Required
a. What is the annual opportunity cost of using the riding mower? Based on your computations, recommend whether Joseph should sell it and hire a lawn service.
b. Determine the total cost of hiring a lawn service for the next five years. Based on your computations, recommend whether Joseph should sell the mower and hire a lawn service.
Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...
Opportunity Cost
Opportunity cost is the profit lost when one alternative is selected over another. The Opportunity Cost refers to the expected returns from the second best alternative use of resources that are foregone due to the scarcity of resources such as land,...
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Fundamental Managerial Accounting Concepts

ISBN: 978-1259569197

8th edition

Authors: Thomas Edmonds, Christopher Edmonds, Bor Yi Tsay, Philip Olds

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