Complete Question:
Suppose you have just finished your third year of college and expect to graduate with a bachelor's degree in accounting after completing two more semesters of coursework. The salary for entry-level positions with an accounting degree is approximately $48,000 in your area. Shelton Industries has just offered you a position in its northwest regional office. The position has an annual salary of $40,000 and would not require you to complete your undergraduate degree. If you accept the position, you would have to move to Seattle.
Required: For each of the following costs, choose 'Yes' to indicate if the cost/benefit is a relevant cost/benefit, irrelevant cost/benefit, sunk cost, or opportunity cost (can choose Yes in more than one column if applicable). (Select 'No' in the inappropriate cells.) Sunk Cost or Benefit or Benefit Cost $40,00 salary from Shelton Anticipated $48,000 salary with an accounting degree Tuition and books for years 1-3 of college Cost to relocate to Seattle Tuition and books for remaining two semesters $19,000 from your part-time job, which you plan to keep up. Cost to rent an apartment in Seattle (assume you are currently living at home with your parents) Food and entertainment expenses, which are expected to be N the same in Seattle as where you currently live Increased promotional opportunities that will come from having a college degree.
Answer:
Choosing 'Yes' to indicate if the cost/benefit is a relevant cost/benefit, irrelevant cost/benefit, sunk cost, or opportunity cost
Cost/Benefit Sunk Opportunity
Relevant Irrelevant Cost Cost
$40,00 salary from Shelton No No No Yes
Anticipated $48,000 salary
with an accounting degree Yes No No No
Tuition and books for years
1-3 of college No Yes Yes No
Cost to relocate to Seattle No Yes No No
Tuition and books for remaining
two semesters Yes No No No
$19,000 from your part-time job,
which you plan to keep up. Yes No No No
Cost to rent an apartment in
Seattle (assume you are currently
living at home with your parents) Yes No No No
Food and entertainment expenses,
which are expected to be the
same in Seattle as where you
currently live No Yes No No
Increased promotional
opportunities that will come
from having a college degree Yes No No No
Explanation:
Relevant cost/benefit: This refers to the additional costs and gains (revenues) that an individual or company will earn if it chooses to pursue a particular action over another.
Irrelevant cost/benefit: This is the opposite of relevant cost/benefit. They do not differ between alternatives, mainly sunk costs and future costs.
Sunk cost: This refers to the cost that has already been incurred. It is not relevant to the decision at hand because it does not make any difference in the decision outcome.
Opportunity cost: This refers to the lost benefit as a result of pursuing one course of action instead of the next.
