Acccounting
CHAPTER 2
THE NATURE OF COSTS
P 2-1:
Solution to Darien Industries (CMA adapted) (10 minutes)
[Relevant costs and benefits]
Current cafeteria income
Sales
Variable costs (40% × 12,000)
Fixed costs
Operating income
Vending machine income
Sales (12,000 × 1.4)
Darien's share of sales
(.16 × $16,800)
Increase in operating income
P 2-2:
$12,000
(4,800)
(4,700)
$2,500
$16,800
2,688
$ 188
Negative Opportunity Costs (10 minutes)
[Opportunity cost]
Yes, when the most valuable alternative to a decision is a net cash outflow that would have occurred is now eliminated. The opportunity cost of that decision is negative
(an opportunity benefit). For example, suppose you own a house with an in-ground swimming pool you no longer use or want. To dig up the pool and fill in the hole costs
$3,000. You sell the house instead and the new owner wants the pool. By selling the house, you avoid removing the pool and you save $3,000. The decision to sell the house includes an opportunity benefit (a negative opportunity cost) of $3,000.
P 2-3:
Solution to NPR (10 minutes)
[Opportunity cost of radio listeners]
The quoted passage ignores the opportunity cost of listeners’ having to forego normal programming for on-air pledges. While such fundraising campaigns may have a low out-of-pocket cost to NPR, if they were to consider the listeners’ opportunity cost, such campaigns may be quite costly.
Chapter 2
© The McGraw-Hill Companies, Inc., 2011
Instructor’s Manual, Accounting for Decision Making and Control
2-1
P 2–4:
Solution to Silky Smooth Lotions (15 minutes)
[Break even with multiple products]
Given that current production and sales are: 2,000, 4,000, and 1,000 cases of 4, 8, and 12 ounce bottles, construct of lotion bundle to consist of 2 cases of 4 ounce bottles, 4 cases of 8 ounce bottles, and 1 case of 12 ounce bottles. The following table calculates the breakeven number of lotion bundles to break even and
THE NATURE OF COSTS
P 2-1:
Solution to Darien Industries (CMA adapted) (10 minutes)
[Relevant costs and benefits]
Current cafeteria income
Sales
Variable costs (40% × 12,000)
Fixed costs
Operating income
Vending machine income
Sales (12,000 × 1.4)
Darien's share of sales
(.16 × $16,800)
Increase in operating income
P 2-2:
$12,000
(4,800)
(4,700)
$2,500
$16,800
2,688
$ 188
Negative Opportunity Costs (10 minutes)
[Opportunity cost]
Yes, when the most valuable alternative to a decision is a net cash outflow that would have occurred is now eliminated. The opportunity cost of that decision is negative
(an opportunity benefit). For example, suppose you own a house with an in-ground swimming pool you no longer use or want. To dig up the pool and fill in the hole costs
$3,000. You sell the house instead and the new owner wants the pool. By selling the house, you avoid removing the pool and you save $3,000. The decision to sell the house includes an opportunity benefit (a negative opportunity cost) of $3,000.
P 2-3:
Solution to NPR (10 minutes)
[Opportunity cost of radio listeners]
The quoted passage ignores the opportunity cost of listeners’ having to forego normal programming for on-air pledges. While such fundraising campaigns may have a low out-of-pocket cost to NPR, if they were to consider the listeners’ opportunity cost, such campaigns may be quite costly.
Chapter 2
© The McGraw-Hill Companies, Inc., 2011
Instructor’s Manual, Accounting for Decision Making and Control
2-1
P 2–4:
Solution to Silky Smooth Lotions (15 minutes)
[Break even with multiple products]
Given that current production and sales are: 2,000, 4,000, and 1,000 cases of 4, 8, and 12 ounce bottles, construct of lotion bundle to consist of 2 cases of 4 ounce bottles, 4 cases of 8 ounce bottles, and 1 case of 12 ounce bottles. The following table calculates the breakeven number of lotion bundles to break even and