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Ilya [14]
2 years ago
10

Eric has plans to go to a play and already has a $50 nonrefundable, nonexchangeable, and nontransferable ticket. Now Ginny, whom

Eric has wanted to date for a long time, asks him to a concert. Eric would prefer to go to the concert with Ginny and forgo the play, but he doesn't want to waste the $50 he spent on the play ticket.
From the perspective of an economist, if Eric decides to go to the concert with Ginny, what has he just done?

a.Made a choice that was not optimal

b.Correctly ignored a sunk cost

c.Incorrectly allowed a sunk cost to influence his decision
Business
1 answer:
KengaRu [80]2 years ago
7 0

Answer:

Correctly ignored a sunk cost.

Explanation:

In economics a sunk cost is one that an individual has already paid for and cannot recover. For example when payment is made for rent it is no longer recoverable.

In this instance Eric has already bought a $50 ticket that is nonrefundable, nonexchangeable, and nontransferable. This is a sunk cost.

Eric wants to go to the concert with Ginny who he wanted to date for a long time.

He will correctly ignore the sunk cost of going to the play because any more time spent on the play will not help recover the $50 already spent.

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In December, Davis Company had the following cost flows: Molding Department Grinding Department Finishing Department Direct mate
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Required 1 ; Journals

Work In Process : Grinding Department $ 128,000 (debit)

Work In Process : Molding Department $ 128,000  (credit)

<em>Being transfer of costs from Molding to Grinding Department</em>

<em />

Work In Process : Molding Department $ 128,000  (debit)

Work In Process : Grinding Department $ 128,000 (credit)

<em>Being transfer of costs from Grinding to Molding Department</em>

<em />

Finished Goods Account $40,000 (debit)

Work In Process : Finishing Department $40,000 (credit)

<em>Being transfer of costs from Finishing department to finished goods account</em>

Required 2 : Difference

<u>Job Order Costing </u>

Each production is unique and there may be no transfers to and from other departments. The is no inventory from previous processes as this is unique to the job order.

<u>Process Costing (Currently in use)</u>

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<u>Finishing Department Costs Calculation</u>

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Direct labor                  $11,600

Applied overhead        $11,200

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Difference :

You should be able to see that the Journal entries above depicts a process costing system. Now provide reasons why this system differs from the job-order cost system. See the reasons above.

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