Discussion+1+key - A202 Spring 2010 Discussion 1(Key at end...

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A202 Spring 2010 Discussion 1 (Key at end) In this class, you will: Form working groups; reflect on your study strategies Review cost concepts, categorize costs and benefits using different concepts Evaluate the costs and benefits of different decision alternatives; make a recommendation Use the space below to record the names and contact information of the students in your current working group: Part I: Quick Review of Cost Concepts Suppose you run a travel business called Adventures Unlimited; your business organizes high-end, one-of- a-kind trips for individuals and for corporate groups. One of the trips you are offering is a Super Bowl Extravaganza. Currently, all 70 places on the trip have been reserved. Since demand seems to be strong, you are considering adding more available spots, increasing the total number of participants to 90 people. Here is your current cost information: Two luxury buses to Florida (each can accommodate 40 people) $2,400 Two tour guides (they are not on salary; they are paid by the trip) $600 Hotel rooms: 36 doubles (includes one room for tour guides) $4,680 Breakfast and dinner buffets, two days (base cost is $100 per meal, plus $5 per person for breakfast, and $15 per person for dinner) $3,280 Band and DJ for second evening celebration $3,400 Ballroom for second evening celebration $1,600 Adventures Unlimited office expenses (rent, receptionist, etc.) allocated to trip $3,500 Advertising promoting trip: Purchased air time on local news shows $8,700 “I survived Super Bowl XLIV” t-shirts for each participant $210 a. With respect to your decision to add 20 more spaces on the trip or not, label each of the costs above as to whether they are: Controllable? Relevant? Variable? Fixed? Mixed? Step? Direct (with respect to the travelers)? Indirect? b. What is the cost per person to your company if 70 people are on the trip? c. What is the cost per person to your company if 90 people take the trip? d. Suppose instead that demand for the trip is very low, and you are considering cancelling the trip. Are any of the above costs not controllable for this decision? Is a variable cost always controllable? Is a fixed cost always not controllable?
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Part II: Identifying Costs and Benefits of Alternatives Gaggle, Inc.’s primary source of profit is the advertising revenue generated by its widely-used search engine. However, last year the company branched out, introducing a new smart phone called the Noxus One. The company currently produces the smart phone in its own production facility in Georgia. Gaggle has had problems with the phone: The Noxus One appears to be overpriced, and Gaggle wants to lower the price to increase sales volume. However, current production costs are high, and if the price is dropped, the phone will not be profitable. Also, the phone has had quality problems; in particular, the screen is susceptible to cracking and separating from the phone - in fact, customers have started to complain about it
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Discussion+1+key - A202 Spring 2010 Discussion 1(Key at end...

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