Principles of Accounting Volume 2
19th Edition
ISBN: 9781947172609
Author: OpenStax
Publisher: OpenStax College
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Chapter 10, Problem 3TP
Brindi’s Babysitting Center currently rents a 1200 sq foot facility for her 20-child facility. Her business has gotten five stars on Yelp, which has prompted more applications. She has to make a decision between expanding her operations to an 1,800 sq foot facility or staying in the current facility. Shown is the cost data of the options:
What is the differential cost of the two alternatives: A) move to a larger facility or B) stay in current facility?
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Miss Jana Lim, a graduate of Cebu University, is going to Manila to review for the CPA Board Examination. She is considering to stay in a dormitory that is just a stone’s throw away from the review school during her 5-month stay in Manila. Her aunt, however, is offering her a room in her house which is about three (3) kilometers away from the school. She told her aunt that she would first conduct differential analysis before making her decision on where to stay. She listed the following costs and cost estimates:
If she will stay in
Her Aunt’s House
A Dormitory
Plane ticket: Cebu-Manila-Cebu
₱8,000
₱8,000
Tuition Fee (1)
1,000
1,000
Boarding and lodging fee
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25,000
Share in food and household expenses
10,000
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Transportation
(Aunt’s house-school-Aunt’s house)
1,700
-
Snacks, etc., while in school
4,000
4,000
Books used in college to be used during the review
10,000
10,000
New review books to be purchased
2,000
2,000
Clothes to be brought to Manila…
Crepe Creations (CC) is considering franchising its unique brand of crepes to stall- holders on Hermoza Beach, which is four miles long. CC estimates that, on an average day, there are 1,000 sunbathers evenly spread along the beach and each sunbather will buy one crepe per day provided that the price plus any disutility cost does not exceed $5. Each sunbather incurs a disutility cost of getting up from resting to get a crepe and returning to their beach spot of 25 cents for every 1⁄4 mile the sunbather has to walk to get to the CC stall. Each crepe costs $0.50 to make and CC incurs a $40 overhead cost per day to operate a stall.
What price should CC charge if it only has one store?
What profit would CC gain if it only has one store?
How many franchises should CC award given that it determines the prices the stall holders can charge and that it will have a profit-sharing royalty scheme with the stall holders?
What is price of a crepe at each stall?
Fusion Metals Company is considering the elimination of its Packaging Department. Management has received an offer from an outside firm to supply all Fusion’s packaging needs. To help her in making the decision, Fusion’s president has asked the controller for an analysis of the cost of running Fusion’s Packaging Department. Included in that analysis is $9,100 of rent, which represents the Packaging Department’s allocation of the rent on Fusion’s factory building. If the Packaging Department is eliminated,the space it used will be converted to storage space. Currently Fusion rents storage space in a nearby warehouse for $11,000 per year. The warehouse rental would no longer be necessary if the Packaging Department were eliminated.
Required:1. Discuss each of the figures given in the exercise with regard to its relevance in the departmentclosing decision.2. What type of cost is the $11,000 warehouse rental, from the viewpoint of the costs of the Packaging Department?
Chapter 10 Solutions
Principles of Accounting Volume 2
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