| a. | Determine the amount of cash Lauras Dress Delivery expects to collect from accounts receivable during January. EXPECTED CASH COLLECTION ( ) 3 Opportunity costs LO 13-1 | Justin Brimer owns his own taxi, for which he bought a $25,000 permit to operate two years ago. Mr. Brimer earns $40,000 a year operating as an independent but has the opportunity to sell the taxi and permit for $84,000 and take a position as dispatcher for Carter Taxi Co. The dispatcher position pays $35,000 a year for a 34-hour week. Driving his own taxi, Mr. Brimer works approximately 47 hours per week. If he sells his business, he will invest the $84,000 and can earn a 10 percent return. | | | | a. | Determine the opportunity cost of owning and operating the independent business. | OPPORTUNITY COST ( ) | b-1. | Calculate the earnings of Justin Brimer operating as an independent. | | | OPERATING AS AN INDEPENDENT ( ) | b-2. | Calculate the earnings of Justin Brimer working as a dispatcher. WORK AS A DISPATCHER ( ) | b-3. | Based solely on financial considerations, should Mr. Brimer sell the taxi and accept the position as dispatcher? YES ( ) OR NO ( ) | Should Packer accept or reject the special order to pour 43 slabs for $2,550 each? | | ACCEPT ( ) OR REJECT ( ) | Should Packer accept or reject the special order to pour 43 slabs for $2,550 each? | | | | 4 Special order decision LO 13-2 | Packer Concrete Company pours concrete slabs for single-family dwellings. Wolff Construction Company, which operates outside Packers normal sales territory, asks Packer to pour 43 slabs for Wolffs new development of homes. Packer has the capacity to build 330 slabs and is presently working on 140 of them. Wolff is willing to pay only $2,550 per slab. Packer estimates the cost of a typical job to include unit-level materials, $930; unit-level labor, $590; and an allocated portion of facility-level overhead, $750. | | | | Calculate the contribution to profit from the special order. CONTRIBUTION TO PROFIT ( ) 6 Outsourcing decision affected by opportunity costs LO 13-3 | Freeman Electronics currently produces the shipping containers it uses to deliver the electronics products it sells. The monthly cost of producing 9,100 containers follows. | | | | | | | | | Unit-level materials | $ | 6,100 | | | Unit-level labor | | 6,800 | | | Unit-level overhead | | 4,200 | | | Product-level costs* | | 7,200 | | | Allocated facility-level costs | | 26,500 | | | | | | | *One-third of these costs can be avoided by purchasing the containers. | | | | Baxi Container Company has offered to sell comparable containers to Freeman for $2.50 each. | | a-1. | Calculate the total relevant cost. TOTAL RELEVANT COST ( ) | a-2. | Should Freeman continue to make the containers? YES OR NO | b-1. | Freeman could lease the space it currently uses in the manufacturing process. If leasing would produce $11,200 per month, Calculate the total avoidable costs. TOTAL AVOIDABLE COSTS ( ) | b-2. | Should Freeman continue to make the containers? YES( ) OR NO( ) | 7 Opportunity cost LO 13-5 | Brewton Freight Company owns a truck that cost $33,000. Currently, the trucks book value is $30,000, and its expected remaining useful life is four years. Brewton has the opportunity to purchase for $22,000 a replacement truck that is extremely fuel efficient. Fuel cost for the old truck is expected to be $5,800 per year more than fuel cost for the new truck. The old truck is paid for but, in spite of being in good condition, can be sold for only $11,000. | | | | Calculate the total relevant costs. | KEEP OLD REPLACE WITH NEW TOTAL RELEVANT COSTS ( ) ( ) | Should Brewton replace the old truck with the new fuel-efficient model, or should it continue to use the old truck until it wears out? | | | | | Replace the old truck ( ) | | | Continue to use the old truck ( ) | | | | | | | | | | |
