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Bala - Solutions Manual - posted on BB (1)

Bala - Solutions Manual - posted on BB (1) - CHAPTER 2...

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C HAPTER 2 IDENTIFYING AND ESTIMATING COSTS AND BENEFITS S OLUTIONS 2.41 Revenue Variability and Traceability, Not for Profit (LO3) . Option 1: Issue lottery tickets The proceeds from the sale of tickets is the only controllable benefit. This revenue is directly traceable to the option of offering the lottery. The revenue also is variable in the number of tickets sold as revenue = $50 per ticket × number of tickets. Option 2: Host charity dinner The revenue from the dinner is a direct benefit that is variable in the number of attendees. The discount from the caterer is also a direct benefit but is fixed . We note that whether we classify a cost reduction as a benefit or as a smaller cost is semantic. Finally, the goodwill created in prospective donors is a significant, but indirect benefit. The benefit is indirect because it is difficult to attribute any future donations solely to the dinner, as the donation is likely the culmination of sustained effort from Foundation staff. It is difficult to classify this benefit with respect to its variability; our inclination is to classify it as fixed as we would be hard pressed to select an activity that makes it variable. While one might be inclined to think that more attendees might lead to greater goodwill, fewer attendees might receive greater attention and donate more! Option 3: Conduct silent auction The proceeds from the auction are the direct benefit. This benefit is likely variable in the number of items sold, although the proportionality is not exact. The other benefit is the exposure received by local artists. We would classify this benefit as indirect because it is hard to trace the exposure (or incremental exposure) to the silent auction. Artist recognition and reputation comes from the accumulation of multiple exposures. Even then, it is difficult to draw a link between exposure and art appreciation. Nevertheless, as it contributes to the background of arts and arts appreciation in the community, we would consider the exposure as an indirect benefit. It is difficult to determine if the benefit is variable. However, one could reasonably expect the exposure to vary in the number of artists participating and/or the number of items sold or up for auction.
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2.43 Hierarchical Cost Structure: Cost Classifications (LO4). Unit-Level . The cost of food and drinks consumed is likely a unit-level activity – the more people, the more food and drink. While it is not possible to predict food costs perfectly, Sun and Sand will consider the number of members in residence when deciding the amount of food to make. From a control perspective, S&S’s managers likely track the cost of food per member quite closely. Batch-Level . S&S incurs many batch level costs. Consider the cost of posting lifeguards on the beach. The number of lifeguards posted is not strictly proportional to the number of members on the beach. Rather, the head lifeguard probably follows some kind of a gut feel (and local regulations) in posting more lifeguards as more people enter the beach. From
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