Question 1

Date :26-07-2021

Priscilla Diller quit her $60,000 per year job with South Central Construction to

open her own company, Diller Didactic Consulting. She rented an office in the Peach

Street Professional Building for $550 a month, hired a receptionist for S1,500 a

month, and leased a computer from Silly Clone Systems for $130 per month.

At first, business was slow, so Priscilla paid $800 to use a mailing list and sent out

1,200 advertising brochures. The cost of postage and printing was S1.37 per

brochure. Business improved immediately, and no further advertising has been

necessary.

Priscilla's business improved so much that she hired two associates for $5,000 per

month and installed them in the remaining two offices in the Peach Street

Professional Building, and then she bought the building for S198,000. She replaced

her one leased computer with three computers of the same type that she purchased

from Silly Clone Systems for $22,000 and she talked her husband into quitting his

$24,000 per year teaching job so that he could work for Diller Didactic as an

executive secretary.

Use the preceding information to solve Problems 1 through 3.

1. What were the explicit, implicit, and relevant monthly costs of running Diller

Didactic Consulting before business improved? What monthly revenue was

required for the firm to break even?

2. What are the explicit, implicit, and relevant monthly costs of running Diller

Didactic Consulting after business improved? What monthly revenue is

required for the firm to break even?

3. Are any of Diller Didactic's past expenditures irrelevant to future business

decisions; i.e., are any of them sunk costs? If so, which?