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Downey Jones owns a successful flower shower called Bloomingtown. Downey wants to expand the shop by leasing the space next door for P1,200 per month,
- Downey Jones owns a successful flower shower called Bloomingtown. Downey wants to expand the shop by leasing the space next door for P1,200 per month, and adding refrigerators to keep the flowers fresh and two checkout counters so the customers do not have to wait in long lines. She currently pays P1,000 per month for her current store space and has two refrigerators that cost her P6,000 each two years ago. She figures that the new refrigerators and counters will cost P25,000. She also has determined that the current cash register that initially cost her P1,000 two years ago and has been depreciated P250 each year would have to be replaced with two new cash registers costing P1,500 each. She thinks sales would increase by P10,000 per month. Variable costs are 40% of sales.
Required:
A. | What are the relevant costs and benefits of expanding into the new space? |
B. | What are the irrelevant costs and benefits of expanding into the new space? |
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