ACCOUNTING: IDENTIFICATION OF RELEVANT COSTS CHECK ANSWER?

James and Janet Jones are trying to decide whether to go to the symphony or to the baseball game. They already have two nonrefundable tickets to "Pops Night at the Symphony" that cost $40 each. This is the only concert of the season they considered attending because it is the only one with the type of music they enjoy. The baseball game is the last one of the season, and it will decide the league championship. They can purchase tickets for $20 each. The Jones will drive 50 miles round-trip to either event. Variable costs for operating their auto are $.18 per mile, and fixed costs average $.13 per mile for the 15,000 miles they drive annually. Parking at the symphony is free, but it costs $6 at the ball game.

To attend either event, James and Janet will hire a baby-sitter at $7 per hour. They expect to be gone 5 hours to attend the baseball game, but only 4 hours to attend the symphony.

Compare the cost of attending the baseball game with the cost of attending the symphony. Focus on relevant costs. Compute the difference in cost, and indicate which alternative is more costly to the Jones.

I want to check my computing:

Symphony 80 two tickets

50miles x 0,18 = 9

50 miles x 0,13 = 6,5

7 x 4 hour = 28

total $129.5

Baseball:

$40 +9+6,5 + 35 = $90,5

Is this correct?

thanks

1 Answer

Relevance
  • JKRB
    Lv 7
    1 decade ago
    Favorite Answer

    By the wording of your question, you want to identify only the relevant costs. Relevant costs are those that will occur in the future and they differ among alternative courses of action. Break down the question and see which costs are relevant and which are not.

    They already have two nonrefundable tickets to "Pops Night at the Symphony" that cost $40 each.

    Since the tickets are nonrefundable and the costs occurred in the past, they are considered "sunk costs". They are not relevant.

    The baseball game is the last one of the season, and it will decide the league championship. They can purchase tickets for $20 each.

    These are relevant costs.

    Baseball Game: 20 x 2 = 40

    The Jones will drive 50 miles round-trip to either event. Variable costs for operating their auto are $.18 per mile, and fixed costs average $.13 per mile for the 15,000 miles they drive annually.

    These costs do not differ, so they are not relevant.

    Parking at the symphony is free, but it costs $6 at the ball game.

    These costs are relevant.

    Symphony: 0

    Baseball Game: 6

    To attend either event, James and Janet will hire a baby-sitter at $7 per hour. They expect to be gone 5 hours to attend the baseball game, but only 4 hours to attend the symphony.

    These costs are relevant.

    Symphony: 4 x 7 = 28

    Baseball Game: 5 x 7 = 35

    Total Relevant Costs:

    Symphony: 28

    Baseball Game: 40 + 6 + 35 = 81

    The costs of attending the baseball game are $53 more than the costs of attending the symphony.

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