(Relevant vs. sunk costs) Your friend, Bill Hawkins, purchased a new, combination phone and answering machine just prior to the start of this school term.

He paid $95 for the equipment. Shortly after the start of the semester, during a party at his apartment, Bill’s answering machine was crushed by an errant

“flying plant.” Returning the equipment to his retailer, Bill was informed that the estimated cost of repairs was $45.

Bill, pondering the figures, was ready to conclude that repairs should be made; after all, he had recently paid $95 for the equipment. However, before making a decision, Bill decided to ask for your advice, knowing that you were enrolled in a cost accounting course this term.

a. Using concepts learned from this chapter, prepare a brief presentation which outlines factors Bill should consider in making his decision.

b. Continue the presentation in part

(a) by discussing the options Bill should consider in making his decision. Start by defining a base case against which alternatives may be compared.