Alderon Case 8.3
Case 2-59
1(a)
The previous purchase price that was $10/gallon of endor and the average cost of $9.50/gallon of endor are sunk costs. These are costs that were incurred in the past and will not have any impact on future costs; these costs are irrelevant to any future decision.
Details Amount ($)
Number of gallons 900
Cost per gallon 11.50
Total Cost 10,350 (900 x 11.50)
The material will not be purchased at its current price ($11/gallon), therefore this cost is too irrelevant. The required 900 gallons of endor will be sold at a cost of $11.50/gallon if the order is accepted.
Hence, the real cost of endor for the special order is $10,350.
1(b)
The $40,000 that Alderon paid for its stock of tatooine are sunk costs. It was a cost incurred in the past therefore it is irrelevant to any decisions that will be made in the future. …show more content…
Alderon will use 1,400 kilograms of its tatooine stock if the special order is accepted in which they would lose the opportunity to sell off its entire 1,900-kilogram stock for $28,000. The $28,000 is an opportunity cost of using the tatooine instead of selling it to Solo Industries.
If Alderon uses 1,400 kilograms of tatooine in production, they will have to pay $2,000 for the remaining 500 kilograms that would be disposed of in a hazardous waste disposal site. The $2,000 would be considered an out-of-pocket expense. l
The real cost of tatooine used in the special order is $30,000
1(a)
The previous purchase price that was $10/gallon of endor and the average cost of $9.50/gallon of endor are sunk costs. These are costs that were incurred in the past and will not have any impact on future costs; these costs are irrelevant to any future decision.
Details Amount ($)
Number of gallons 900
Cost per gallon 11.50
Total Cost 10,350 (900 x 11.50)
The material will not be purchased at its current price ($11/gallon), therefore this cost is too irrelevant. The required 900 gallons of endor will be sold at a cost of $11.50/gallon if the order is accepted.
Hence, the real cost of endor for the special order is $10,350.
1(b)
The $40,000 that Alderon paid for its stock of tatooine are sunk costs. It was a cost incurred in the past therefore it is irrelevant to any decisions that will be made in the future. …show more content…
Alderon will use 1,400 kilograms of its tatooine stock if the special order is accepted in which they would lose the opportunity to sell off its entire 1,900-kilogram stock for $28,000. The $28,000 is an opportunity cost of using the tatooine instead of selling it to Solo Industries.
If Alderon uses 1,400 kilograms of tatooine in production, they will have to pay $2,000 for the remaining 500 kilograms that would be disposed of in a hazardous waste disposal site. The $2,000 would be considered an out-of-pocket expense. l
The real cost of tatooine used in the special order is $30,000