Discussion - Chapter 10 Chapter 10 Discussion Read Rubric First 1. What is a relevant cost? Provide an example and specify the relevant costs in your example. (See the example on page 460 - Do not copy this example) 2. What is the danger in allocating common fixed costs among specific products or others segments of an organization? 3. From a decision-making point of view, should joint costs be allocated among joint products? Why or why not? Search entries or author Unread Chapter 10 An Example of Identifying Relevant Costs and B. Cynthia is currently a student in an MBA program in Boston and would like to in New York City over the weekend. She is trying to decide whether to dri train. Because she is on a tight budget, she wants to carefully consider the alternatives. If one alternative is far less expensive than the other, that may be choice. By car, the distance between her apartment in Boston and her friend's New York City is 230 miles. Cynthia has compiled the following list of items to co sts and Benefits like to visit aber to drive or take the der the costs of the way be decisive the ber friend's apartment in Automobile Costs Annual Cost of Cost per (based on 10,000 miles per year) Fix tems $2,800 $0.280 (a) Annual straight-line depreciation on car [(S24,000 original cost - $10,000 estimated resale value in 5 years) 5 years) .... (b) Cost of gasoline ($3.30 per gallon +33 miles per gallon). ........... (c) Annual cost of auto insurance and license....... (d) Maintenance and repairs..... (e) Parking fees at school ($45 per month x 8 months) () Total average cost per milo...... $1380 0.100 0.138 0.065 $360 0.036 $0 619 Additional Data Item $0.026 per mile $104 (g) Reduction in the resale value of car due solely to wear and tear ...... th) Cost of round-trip train ticket from Boston to New York City. Benefit of reading and being able to study during the train de rather than having to drive (i) Cost of putting the dog in a kennel while gone... (k) Benefit of having a car available in New York City... () Hassle of parking the car in New York City.. (m) Cost of parking the car in New York City....... $40 $25 per day niber, only those cod mg else is imelev Which costs and benefits are relevant in this decision? Remember and benefits that differ between alternatives are relevant. Everything is can be ignored. Start at the top of the list with item (a): the original cost of the car is cost has already been incurred and therefore can never differ betebe Consequently, it is irrelevant and should be ignored. The same is truc depreciation of $2,800 per year, which simply spreads the sunk cost Item (b), the cost of gasoline consumed by driving to New York City, If Cynthia takes the train, this cost would not be incurred. Hence, the alternatives and is therefore relevant lemic), the annual cost of auto insurance and licen takes the train or drives on this is a sunkow The etween alteratives Cost across five years Cily is a relevan e coat differs be auto lice Whether