Classifying Relevant and Irrelevant Items

The law firm of Hannan, Taylor, and Masteller has been asked to represent a local client. All legal

proceedings will be held out of town in Boston.

Required

The law firms accountant has asked you to help determine the incremental cost of accepting this client.

Classify each of the following items on the basis of their relationship to this engagement. Items may

have multiple classifications.

Relevant costs Irrelevant costs

Opportunity Outlay Outlay Sunk

1. The case will require three attorneys to stay four

nights in a Boston hotel. The predicted hotel bill

is $2,400.

2. Hannan, Taylor, and Mastellers professional staff

is paid $2,000 per day for out-of-town assignments.

3. Last year, depreciation on Hannan, Taylor, and

Mastellers office was $25,000.

4. Round-trip transportation to Boston is expected to

cost $250 per person.

5. The firm has recently accepted an engagement that

will require partners to spend two weeks in Chi-

cago. The predicted out-of-pocket costs of this trip

are $8,500.

6. The firm has a maintenance contract on its com-

puter equipment that will cost $2,200 next year.