Managerial Accounting
3rd Edition
ISBN: 9780077826482
Author: Stacey M Whitecotton Associate Professor, Robert Libby, Fred Phillips Associate Professor
Publisher: McGraw-Hill Education
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Chapter 7, Problem 3E
Identifying Relevant Costs and Calculating Differential Costs
Maria Turner has just graduated from college with a degree in accounting. She had phoned to enroll immediately m the master’s program at her university but has been offered a lucrative job at a well-known company. The job is exactly what Maria had hoped to find after obtaining her graduate degree.
In anticipation of master’s program classes, Maria has already spent $450 to apply for the program. Tuition is $8,000 per year, and the program will take two years to complete. Maria’s expected salary after completing the master’s program is approximately S60.000. If she pursues the master’s degree. Maria would stay in her current home that is near the campus and costs $600 per month in rent. She would also remain at her current job that pays $25,000 per year. Additionally, Maria’s immediate family is nearby. She spends considerable time with family and friends, especially during the holidays. This would not be possible if she accepts the job offer because of the distance from her new location.
The job Maria has been offered includes a salary of $50,000. She would have to relocate to another state, but bet employer would pay the $5,000 for moving expenses. Maria’s rent In the new location would be approximately $800 per month. The new location is a fast-growing, active city that offers a number of cultural activities that Maria would enjoy. The city is also home to Maria’s favorite Major League Baseball team, and she would expect to buy season tickets.
1. Help Maria make her decision by categorizing the factors involved in making her choice. Complete the following chart regarding the factors in Maria’s decision. A single factor may have multiple columns checked. 
For each of the following items, identify the differential amount in Maria’s altranatives. For example, the incremental cost of tuition is $16,000 if Maria chooses to pursue the master’s degree.
(a) Rent.
(b) Salary for the next two years.
(c) Salary after two years.
(d) Moving expenses.
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Karen has been working with a small travel agency for the past few years to learn the business and to better understand what costs
are necessary to run it. Now, having been in the business world for a few years, she's ready to start her own travel agency, specializing
in "off the grid" locations. She knows there will be both overhead costs and labor costs, since she intends to hire one assistant. The
following chart outlines her estimates thus far.
Annual net operating cash flows³
Initial asset investment
Asset life in years
$3,800
$9,800
8
Salvage value of asset at end of useful life
$1,000
Tax rate
25%
a After assistant and overhead costs, but does not include a salary for Karen.
As a new business owner, Karen only expects to earn a 5% rate of return. She conducted an initial NPV anlaysis for an 8-year interval,
recognizing that she'll make some significant adjustments after that point. Her initial analysis revealed a positive NPV.
Click here to view the factor table
(a)
Rerun the…
Karen has been working with a small travel agency for the past few years to learn the business and to better understand what costs
are necessary to run it. Now, having been in the business world for a few years, she's ready to start her own travel agency, specializing
in "off the grid" locations. She knows there will be both overhead costs and labor costs, since she intends to hire one assistant. The
following chart outlines her estimates thus far.
Annual net operating cash flowsa
Initial asset investment
Asset life in years
Salvage value of asset at end of useful life
Tax rate
(a)
$3,800
$9,800
NPV $
8
*After assistant and overhead costs, but does not include a salary for Karen.
As a new business owner, Karen only expects to earn a 5% rate of return. She conducted an initial NPV anlaysis for an 8-year interval,
recognizing that she'll make some significant adjustments after that point. Her initial analysis revealed a positive NPV.
Click here to view the factor table
Karen's…
Suppose you have just finished your third year of college and expect to graduate with a bachelor's degree in accounting after
completing two more semesters of coursework. The salary for entry-level positions with an accounting degree is approximately
$48,000 in your area. Shelton Industries has just offered you a position in its northwest regional office. The position has an annual
salary of $40,000 and would not require you to complete your undergraduate degree. If you accept the position, you would have to
move to Seattle.
Required:
For each of the following costs, choose 'Yes' to indicate if the cost or benefit is a relevant cost or benefit, irrelevant cost or benefit,
sunk cost, or opportunity cost (can choose "Yes" in more than one column if applicable).
(Select 'No' in the inappropriate cells.)
$40,000 salary from Shelton
Anticipated $48,000 salary with an accounting degree
Tuition and books for years 1 to
college
Cost to relocate to Seattle
Tuition and books for remaining two…
Chapter 7 Solutions
Managerial Accounting
Ch. 7 - Briefly describe the five steps of the management...Ch. 7 - Suppose you are considering a part-time job to...Ch. 7 - Prob. 3QCh. 7 - What are criteria for a cost to be considered...Ch. 7 - Prob. 5QCh. 7 - Explain opportunity cost and list two opportunity...Ch. 7 - Why should opportunity costs be factored into the...Ch. 7 - Explain excess capacity and full capacity. Include...Ch. 7 - How e the concepts of full capacity and...Ch. 7 - Prob. 10Q
Ch. 7 - Prob. 11QCh. 7 - Prob. 12QCh. 7 - Suppose that you the manager of a local deli. Give...Ch. 7 - Prob. 14QCh. 7 - Prob. 15QCh. 7 - Prob. 16QCh. 7 - Prob. 17QCh. 7 - Briefly explain what happens to total variable...Ch. 7 - Prob. 19QCh. 7 - Prob. 20QCh. 7 - Prob. 21QCh. 7 - Prob. 1MCCh. 7 - Prob. 2MCCh. 7 - Prob. 3MCCh. 7 - Prob. 4MCCh. 7 - Prob. 5MCCh. 7 - Which of the following costs is not likely to be...Ch. 7 - Which of the following causes opportunity costs to...Ch. 7 - Prob. 8MCCh. 7 - Prob. 9MCCh. 7 - Prob. 10MCCh. 7 - Matching Key Terms and Concepts to Definitions A...Ch. 7 - Prob. 2MECh. 7 - Prob. 3MECh. 7 - Prob. 4MECh. 7 - Prob. 5MECh. 7 - Prob. 6MECh. 7 - Prob. 7MECh. 7 - Prob. 8MECh. 7 - Prob. 10MECh. 7 - Prob. 11MECh. 7 - Identifying Steps in Decision-Making Process...Ch. 7 - Identifying Steps in Decision-Making Process and...Ch. 7 - Identifying Relevant Costs and Calculating...Ch. 7 - Prob. 4ECh. 7 - Prob. 5ECh. 7 - Prob. 6ECh. 7 - Analyzing Keep-or-Drop Decision MSI is consider...Ch. 7 - Prob. 8ECh. 7 - Prob. 9ECh. 7 - Prob. 10ECh. 7 - Prob. 11ECh. 7 - Prob. 12ECh. 7 - Prob. 13ECh. 7 - Prob. 1.1GAPCh. 7 - Prob. 1.2GAPCh. 7 - Prob. 1.3GAPCh. 7 - Prob. 1.4GAPCh. 7 - Prob. 2.1GAPCh. 7 - Prob. 2.2GAPCh. 7 - Prob. 2.3GAPCh. 7 - Prob. 2.4GAPCh. 7 - Prob. 2.5GAPCh. 7 - Prob. 3.1GAPCh. 7 - Prob. 3.2GAPCh. 7 - Prob. 3.3GAPCh. 7 - Prob. 4.1GAPCh. 7 - Prob. 4.2GAPCh. 7 - Prob. 4.3GAPCh. 7 - Prob. 5GAPCh. 7 - Prob. 6.1GAPCh. 7 - Prob. 6.2GAPCh. 7 - Prob. 6.3GAPCh. 7 - Prob. 6.4GAPCh. 7 - Prob. 7.1GAPCh. 7 - Prob. 7.2GAPCh. 7 - Prob. 7.3GAPCh. 7 - Analyzing Special-Order Decision Camino Company...Ch. 7 - Prob. 8.2GAPCh. 7 - Analyzing Special-Order Decision Camino Company...Ch. 7 - Analyzing Make-or-Buy Decision Old Camp Company...Ch. 7 - Prob. 9.2GAPCh. 7 - Prob. 9.3GAPCh. 7 - Prob. 1.1GBPCh. 7 - Prob. 1.2GBPCh. 7 - Prob. 1.3GBPCh. 7 - Prob. 1.4GBPCh. 7 - Prob. 2.1GBPCh. 7 - Prob. 2.2GBPCh. 7 - Analyzing Make-or-Buy Decision Greenview Corp....Ch. 7 - Prob. 2.4GBPCh. 7 - Prob. 2.5GBPCh. 7 - Prob. 3.1GBPCh. 7 - Prob. 3.2GBPCh. 7 - Prob. 3.3GBPCh. 7 - Prob. 4.1GBPCh. 7 - Prob. 4.2GBPCh. 7 - Prob. 4.3GBPCh. 7 - Prob. 5GBPCh. 7 - Prob. 6.1GBPCh. 7 - Prob. 6.2GBPCh. 7 - Prob. 6.3GBPCh. 7 - Prob. 6.4GBPCh. 7 - Analyzing Sell-or-Process-Further Decision Golden...Ch. 7 - Prob. 7.2GBPCh. 7 - Prob. 7.3GBPCh. 7 - Prob. 8.1GBPCh. 7 - Prob. 8.2GBPCh. 7 - Prob. 8.3GBPCh. 7 - Analyzing Make-or-Buy Decision Gold Dust Co....Ch. 7 - Prob. 9.2GBPCh. 7 - Prob. 9.3GBP
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