Question

Exercise B: Assume you had invested $1,000 in a lawn mower to set up a lawn mowing business for the summer. During the first week, you could choose either to mow the grounds at a housing development for $1,400 or to help paint a garage for $1,360. Each job would take one week. You cannot do both. You would incur additional costs of $160 for lawn mowing and $80 for garage painting. These costs include $60 under each alternative for transportation to the job. Prepare a schedule showing the net benefit or advantage of selecting one alternative over the other.

Answer 1

Answer:

$\left[\begin{array}{cccc}& mow grounds& paint garage& Differential\\ Revenue&1400&1360&\\ Cost&-160&-80&\\ Net &1240&1280&-40\\\end{array}\right]$

It is better to paint the garage this week as provide better relevant yield.

Explanation:

The 1,000 invested in the law mower ware sunk cost as it is already incurred. After this week we will be still be able to take jobs ralated to the lawn mower.

We must base our analysis in the future cost associate with each alternative.

These are the revenue of each job and the additional cost.

The transportation as they are equal to both alternative are disregarded.