Week 9 ACCY 111 RJD Lecture 5

Sunk costs can be easily identified in that they have

Info icon This preview shows pages 10–19. Sign up to view the full content.

View Full Document Right Arrow Icon
Sunk costs can be easily identified in that they have either been paid for, or the organisation is committed and cannot avoid payment in the future. They are incurred as a result of past decisions and can therefore be ignored in the context of future decisions.
Image of page 10

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Differential (Incremental) Costs Only differential (i.e. incremental) costs are relevant to future decisions. These are the differences in costs and benefits between alternative opportunities available to the organisation. It follows that when a number of costs and alternatives are being considered, costs and benefits that are common to these alternative opportunities are irrelevant to the decision.
Image of page 11
Relevant Costs - a Summary Relevant Costs opportunity costs - the cost of being deprived of the next best option future outlay costs - that vary with the decision Irrelevant Costs past costs costs that were incurred as a result of a past decision future outlay costs - that do not vary with the decision
Image of page 12

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
No resource constraints Stopping or continuing a department, product or service. Accepting or rejecting a special contract.
Image of page 13
Stopping or Continuing a Department or Product Line Whitcoulls - Paekakariki Books - Fiction Books - Non-fiction DVDs Stationery Magazines & newspapers TOTAL Gross revenue 450.0 300.0 100.0 25.0 30.0 905.0 Costs 335.0 232.0 95.0 37.5 38.0 737.5 Profit / (Loss) 115.0 68.0 5.0 (12.5) (8.0) 167.5 $ 000
Image of page 14

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Stopping or Continuing a Department or Product Line Whitcoulls - Paekakariki Books - Fiction Books - Non-fiction DVDs Stationery Magazines & newspapers TOTAL Gross revenue 450.0 300.0 100.0 25.0 30.0 905.0 Variable costs : Product Supplies 225.0 150.0 40.0 7.5 24.0 446.5 Temporary Staff 25.0 25.0 10.0 10.0 2.0 72.0 Variable marketing 5.0 2.0 5.0 12.0 Total variable costs 255.0 177.0 55.0 17.5 26.0 530.5 Contribution 195.0 123.0 45.0 7.5 4.0 374.5 Fixed personnel costs 50.0 25.0 25.0 10.0 5.0 115.0 Fixed occupancy costs 20.0 20.0 10.0 5.0 5.0 60.0 Fixed general and administration costs 10.0 10.0 5.0 5.0 2.0 32.0 Total fixed costs 80.0 55.0 40.0 20.0 12.0 207.0 Profit / (Loss) 115.0 68.0 5.0 (12.5) (8.0) 167.5 $ 000
Image of page 15
Stopping or Continuing a Department or Product Line Whitcoulls - Paekakariki Books - Fiction Books - Non-fiction DVDs Stationery Magazines & newspapers TOTAL Gross revenue 450.0 300.0 100.0 850.0 Variable costs : Product Supplies 225.0 150.0 40.0 415.0 Temporary Staff 25.0 25.0 10.0 60.0 Variable marketing 5.0 2.0 5.0 12.0 Total variable costs 255.0 177.0 55.0 487.0 Contribution 195.0 123.0 45.0 .0 .0 363.0 Fixed personnel costs 55.0 30.0 30.0 115.0 Fixed occupancy costs 25.0 25.0 10.0 60.0 Fixed general and administration costs 14.0 13.0 5.0 32.0 Total fixed costs 94.0 68.0 45.0 .0 .0 207.0 Profit / (Loss) 101.0 55.0 .0 .0 .0 156.0 $ 000
Image of page 16

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Accepting/Rejecting Special Contracts If a company has spare capacity to produce goods or services at what point should it utilise that capacity to sell products or services at lower price if that still contributes to its fixed costs? In markets with significant over supply ‘last minute’ deals are frequently available.
Image of page 17
Accepting/Rejecting Special Contracts The Hotel International has 200 rooms, for which it charges $150 a night, but historically is only managing an 80% occupancy rate. The hotel’s monthly costs are summarised as follows: Fixed overheads (rates, insurance, lease, etc) $150,000 per month.
Image of page 18

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 19
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern