Alderon Case 8.3
Case 2-59
1(a)
The previous purchase price that was $10/gallon of endor and the average cost of $9.50/gallon of endor are sunk costs. These are costs that were incurred in the past and will not have any impact on future costs; these costs are irrelevant to any future decision.
Details Amount ($)
Number of gallons 900
Cost per gallon 11.50
Total Cost 10,350 (900 x 11.50)
The material will not be purchased at its current price ($11/gallon), therefore this cost is too irrelevant. The required 900 gallons of endor will be sold at a cost of $11.50/gallon if the order is accepted.
Hence, the real cost of endor for the special order is $10,350.
1(b)
The $40,000 that Alderon paid for its stock of tatooine are sunk costs. It was a cost incurred in the past therefore it is irrelevant to any decisions that will be made in the future. …show more content…
Since no more tatooine would be purchased, the cost of $22/kilogram is irrelevant.
Alderon will use 1,400 kilograms of its tatooine stock if the special order is accepted in which they would lose the opportunity to sell off its entire 1,900-kilogram stock for $28,000. The $28,000 is an opportunity cost of using the tatooine instead of selling it to Solo Industries.
If Alderon uses 1,400 kilograms of tatooine in production, they will have to pay $2,000 for the remaining 500 kilograms that would be disposed of in a hazardous waste disposal site. The $2,000 would be considered an out-of-pocket expense. l
The real cost of tatooine used in the special order is $30,000
($28,000+$2,000)
2(a)
CopyFast Company would be indifferent to acquiring either (1) the small-volume model laser copier, 1500S or (2) the medium-volume model laser copier, 1500M, in which both copiers are equal at the point of time.
(x = no of copies)
1500S and 1500M:
1500S (0.07x + 4,000) = 1500M (0.045x + 5,500)
0.025x = $1,500
So, x = 60,000 copies
2(b)
For the comparison between the 1500S and 1500M:
1500S (0.07x + 4,000) = 1500M (0.045x + 5,500)
0.025x = $1,500
So, x = 60,000 copies
For the comparison between the 1500M and 1500L:
1500M (0.045x + 5,500) = (0.025x + 10,000)
0.02x = $4,500
So, x = 225,000 copies
225,000 copies is the decision rule volume.
3.
Wildlife show (10 x $20,000) = $200,000 (Donation)
Manufacturing show (15 x $10,000) = $150,000 (Donation)
Manufacturing show (if PBS sells wildlife show) = $50,000 (Sales Proceeds)
Total Revenue = $150,000 + $50,000 = $200,000
In conclusion, PBS station’s management would be indifferent if we compare both shows since each would generate revenue of $200,000.
1(a)
The previous purchase price that was $10/gallon of endor and the average cost of $9.50/gallon of endor are sunk costs. These are costs that were incurred in the past and will not have any impact on future costs; these costs are irrelevant to any future decision.
Details Amount ($)
Number of gallons 900
Cost per gallon 11.50
Total Cost 10,350 (900 x 11.50)
The material will not be purchased at its current price ($11/gallon), therefore this cost is too irrelevant. The required 900 gallons of endor will be sold at a cost of $11.50/gallon if the order is accepted.
Hence, the real cost of endor for the special order is $10,350.
1(b)
The $40,000 that Alderon paid for its stock of tatooine are sunk costs. It was a cost incurred in the past therefore it is irrelevant to any decisions that will be made in the future. …show more content…
Since no more tatooine would be purchased, the cost of $22/kilogram is irrelevant.
Alderon will use 1,400 kilograms of its tatooine stock if the special order is accepted in which they would lose the opportunity to sell off its entire 1,900-kilogram stock for $28,000. The $28,000 is an opportunity cost of using the tatooine instead of selling it to Solo Industries.
If Alderon uses 1,400 kilograms of tatooine in production, they will have to pay $2,000 for the remaining 500 kilograms that would be disposed of in a hazardous waste disposal site. The $2,000 would be considered an out-of-pocket expense. l
The real cost of tatooine used in the special order is $30,000
($28,000+$2,000)
2(a)
CopyFast Company would be indifferent to acquiring either (1) the small-volume model laser copier, 1500S or (2) the medium-volume model laser copier, 1500M, in which both copiers are equal at the point of time.
(x = no of copies)
1500S and 1500M:
1500S (0.07x + 4,000) = 1500M (0.045x + 5,500)
0.025x = $1,500
So, x = 60,000 copies
2(b)
For the comparison between the 1500S and 1500M:
1500S (0.07x + 4,000) = 1500M (0.045x + 5,500)
0.025x = $1,500
So, x = 60,000 copies
For the comparison between the 1500M and 1500L:
1500M (0.045x + 5,500) = (0.025x + 10,000)
0.02x = $4,500
So, x = 225,000 copies
225,000 copies is the decision rule volume.
3.
Wildlife show (10 x $20,000) = $200,000 (Donation)
Manufacturing show (15 x $10,000) = $150,000 (Donation)
Manufacturing show (if PBS sells wildlife show) = $50,000 (Sales Proceeds)
Total Revenue = $150,000 + $50,000 = $200,000
In conclusion, PBS station’s management would be indifferent if we compare both shows since each would generate revenue of $200,000.