Session 9 Exercises.docx - Session 9 Exercises Problem 1 Mrs Bandelier is considering the purchase of a computer for her accounting practice Two

# Session 9 Exercises.docx - Session 9 Exercises Problem 1...

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Session 9: Exercises Problem 1 Mrs. Bandelier is considering the purchase of a computer for her accounting practice. Two alternatives are available as follows: (1) (2) Initial cost \$10,000 \$12,000 Salvage value 1,000 2,000 Useful life 3 years 3 years Utilities/year 1,000 800 Labor/year 25,000 25,000 Repairs/year 1,000 900 Supplies/year 2,000 2,000 Required: 1) Which are sunk costs? No sunk costs because she hasn’t buy it. 2) Which are irrelevant costs? Labor cost 3) Prepare a comparative cost analysis for the two alternatives. Ignore the time value of money and taxes. (Hint: include only relevant costs). (1) \$10,000-\$1,000+(1,000+1,000)*3=15,000 (2) \$12,000-\$2,000+(800+900)*3=15,100 4) Which alternative do you recommend? Explain. The (1) because it causes less 9dfb53334658578487a3344a3e61edc4ca8b5176.docx Page 1 of 6
Problem 2 Upset Ulysses is at it once again after he received the fully allocated monthly income statement for his hotel. He does a little research and asks for your advice. He sees three alternatives for the failing department as follows: Continue the operation as is. Close it and expand the restaurant. Lease the space to a third party, Red Star, who would run the operation. The following table is the hotel’s the condensed monthly income statement: Rooms Food Lounge Total Sales \$300,000 \$100,000 \$100,000 \$500,000 Expenses 100,000 50,000 80,000 230,000

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• Spring '20
• Red Star, Sabrina Rose

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