In the figures no provision has been made for the cost of the time Mrs Letsatsi spends on the business. It is estimated that she devotes one half of her time to the business. She is undecided whether to continue with her plans or sublet the shop to a friend for a monthly rental of R550.

1. Explain and identify the sunk and opportunity costs in the situation depicted above. Limit your explanation to 2 sentences each cost.

Mrs. Letsatsi has taken out a lease on a shop for a deposit of R5000. In addition, the rent under the lease amounts to R5000 per annum. If the lease is cancelled, the initial payment of R5000 is forfeited. Mrs. Letsatsi plans to use the shop for the sale of clothing and has estimated operations for the next 12 months as follows: R120 000 20 000 100 000 50 000 2 000 Sales Less Value added Tax(VAT) Sales less Vat Cost of goods sold Wages and wage related costs Rent including down payment Rates, water and electricity Audit, legal and general expenses Total costs Net profit before tax 10 000 13 000 2 000 87 000 13 000