Scenario Brad Winston is the owner and operator of Fishing Unlimited, a charter fishing business operated...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Scenario Brad Winston is the owner and operator of Fishing Unlimited, a charter fishing business operated out of Oregon Inlet, NC. Brad has been taking groups of guests offshore to fish for tuna and marlin for over 15 years. He purchased his current fishing boat when he started the business, but now believes that a larger and better-outfitted vessel would allow him to increase the rate he charges per charter. Currently, he can carry a maximum of 6 guests while the larger boat will carry up to 8. The larger boat would also require him to take 2 deck hands on each outing, providing better service to his customers. Cost data for Brad's business is shown in the figure below. Figure 1 Fishing Unlimited Annual straight-line depreciation on boat $8,300l (S175,000 original cost – $90,000 estimated resale value/20 years) Fuel Cost (per hour) $ 50 Insurance Premium (annual) $ 1,900 Maintenance and Repairs (annual) $ 3,500 Fishing Tackle and Gear (original cost) S7,000 Tackle and Bait (per guest) $ 20 Deck Hand wages (per hour) $ 20 Dock Fees (annual) S2,400 Captain's License (annual) $ 200 Food and Beverages (per guest) S 25 Professional Fees (per year) S 750 Dock Utilities (annual) $ 1,200 Brad has someone interested in purchasing his existing boat for $80,000. He could use this cash as a deposit on the new boat which will cost him $225,000. His banker estimates the payments on the new boat will be about $1,500. The new boat is more fuel-efficient and he believes he can cut his fuel costs by 10% but the more expensive boat will increase his insurance premium by 12%. He is also concerned that he will have to change to a larger boat slip which would increase his dock fees by 5%. The good thing about the new boat is that he should save on maintenance and repairs, at least for the first 3 years. The only other expense Brad would incur with the new boat is adding some additional fishing tackle and gear to accommodate larger parties that he estimates would cost him about $1,500. His fees for both the old and the new boat are as follows: Old BoatNew Boat 4 hours $ 550 $ 600 6 hours S 650 $ 700 Full Day (9 hours)$ 1,100 $ 1,200 Questions 1. Which costs are relevant to Brad's decision to purchase a new, larger boat? 2. If Brad decides to purchase a larger boat, what costs will be affected by this decision? Will they increase or decrease? Scenario Brad Winston is the owner and operator of Fishing Unlimited, a charter fishing business operated out of Oregon Inlet, NC. Brad has been taking groups of guests offshore to fish for tuna and marlin for over 15 years. He purchased his current fishing boat when he started the business, but now believes that a larger and better-outfitted vessel would allow him to increase the rate he charges per charter. Currently, he can carry a maximum of 6 guests while the larger boat will carry up to 8. The larger boat would also require him to take 2 deck hands on each outing, providing better service to his customers. Cost data for Brad's business is shown in the figure below. Figure 1 Fishing Unlimited Annual straight-line depreciation on boat $8,300l (S175,000 original cost – $90,000 estimated resale value/20 years) Fuel Cost (per hour) $ 50 Insurance Premium (annual) $ 1,900 Maintenance and Repairs (annual) $ 3,500 Fishing Tackle and Gear (original cost) S7,000 Tackle and Bait (per guest) $ 20 Deck Hand wages (per hour) $ 20 Dock Fees (annual) S2,400 Captain's License (annual) $ 200 Food and Beverages (per guest) S 25 Professional Fees (per year) S 750 Dock Utilities (annual) $ 1,200 Brad has someone interested in purchasing his existing boat for $80,000. He could use this cash as a deposit on the new boat which will cost him $225,000. His banker estimates the payments on the new boat will be about $1,500. The new boat is more fuel-efficient and he believes he can cut his fuel costs by 10% but the more expensive boat will increase his insurance premium by 12%. He is also concerned that he will have to change to a larger boat slip which would increase his dock fees by 5%. The good thing about the new boat is that he should save on maintenance and repairs, at least for the first 3 years. The only other expense Brad would incur with the new boat is adding some additional fishing tackle and gear to accommodate larger parties that he estimates would cost him about $1,500. His fees for both the old and the new boat are as follows: Old BoatNew Boat 4 hours $ 550 $ 600 6 hours S 650 $ 700 Full Day (9 hours)$ 1,100 $ 1,200 Questions 1. Which costs are relevant to Brad's decision to purchase a new, larger boat? 2. If Brad decides to purchase a larger boat, what costs will be affected by this decision? Will they increase or decrease?
Expert Answer:
Answer rating: 100% (QA)
1 Relevant cost can be understood as the extra cost that needs to be incurred in order to exerci... View the full answer
Related Book For
Accounting
ISBN: 978-1285743615
26th edition
Authors: Carl S. Warren, James M. Reeve, Jonathan Duchac
Posted Date:
Students also viewed these business communication questions
-
Bill Dundee is the owner and operator of Western Bottling, a bulk soft-drink producer. A single production process yields two bulk soft drinks, Rainbow Dew (the main product) and Resi-Dew (the...
-
Paul Eberly is the owner and operator of Youre Great, a motivational consulting business. At the end of its accounting period, December 31, 2009, Youre Great has assets of $475,000 and liabilities of...
-
Lynn Doyle is the owner and operator of Star LLC, a motivational consulting business. At the end of its accounting period, December 31, 2009, Star has assets of $750,000 and liabilities of $293,000....
-
Practice Problem 6: We-B-Busy, Inc. uses job costing and a predetermined overhead rate based on machine hours (MH). The firm estimated that it would use $240,000 of MOH and 7,500 MH this year. Data...
-
Why does a differentiated services (DS) domain consist of a set of contiguous routers? How are the boundary node routers different from the interior node routers in a DS domain?
-
Assume that the real risk-free rate is 4 percent and the maturity risk premium is zero. If the nominal rate of interest on one-year bonds is 11 percent, and on comparable-risk two year bonds it is 13...
-
Compare and contrast assemblers, compilers, interpreters, and virtual machines.
-
Using supply-and-demand diagrams, illustrate and explain the effect of an outward shift in the demand curve on price and quantity if a. The supply curve is horizontal. b. The supply curve is...
-
On December 31 of 2022, Tkaronto Corp. had 750 units in inventory of its product, which cost $15 per unit to produce. During January 2023, the company produced 1000 units at a cost of $17 per unit....
-
You are trying to prepare nancial statements for Bartlett Pickle Company, but seem to be missing its balance sheet. You have Bartletts income statement, which shows sales last year were $310 million...
-
Consider a $140,000, 7-year loan at 5 percent interest. The loan agreement requires the firm to pay equal amounts of principal for each year plus interest and the loan to be paid in full at the end...
-
Roland worked for Sorbonne Company for the first four months of 2017 and earned $40,000 from which his employer withheld $3,060 for payroll taxes. In May, Roland accepted a job with Lyon Company....
-
Janes sister-in-law, a stockbroker at Invest, Inc., is trying to get Jane to buy the stock of HealthWest, a regional HMO. The stock has a current market price of $25, its last dividend (D 0 ) was...
-
Assume the risk-free rate is 6 percent and the market risk premium is 6 percent. The stock of Clinicians Care Alliance (PCA) has a beta of 1.5. The last dividend paid by PCA (D 0 ) was $2 per share....
-
Lauren is single, age 60, and has an annual salary of $68,000. She paid off her mortgage in December 2016 but expects that her annual real estate taxes will continue to be approximately $5,800....
-
An investor is considering buying the stock of two home health companies that are similar in all respects except the proportion of earnings paid out as dividends. Both companies are expected to earn...
-
What is the current opportunity cost of a five-year old concrete wall around a property if the wall originally cost 500,000 to build, is depreciated straight-line over 20 years, and the owner has a...
-
If you want to solve a minimization problem by applying the geometric method to the dual problem, how many variables and problem constraints must be in the original problem?
-
Josiah Barlow, Patty DuMont, and Owen Maholic are contemplating the formation of a partnership. According to the partnership agreement, Barlow is to invest $60,000 and devote one-half time, DuMont is...
-
A $500,000 bond issue on which there is an unamortized premium of $67,000 is redeemed for $490,000. Journalize the redemption of the bonds.
-
Alpha Sounds Corp., an electric guitar retailer, was organized by Michele Kirby, Paul Glenn, and Gretchen Northway. The charter authorized 1,000,000 shares of common stock with a par of $1. The...
-
What is the activity in \(\mathrm{Bq}\) and in \(\mathrm{Ci}\) of a \(2.0 \mathrm{mg}\) sample of \({ }^{3} \mathrm{H}\) ?
-
The activity of a sample of the cesium isotope \({ }^{137} \mathrm{Cs}\) is \(2.0 \times 10^{8} \mathrm{~Bq}\). Many years later, after the sample has fully decayed, how many beta particles will have...
-
The technique known as potassiumargon dating is used to date volcanic rock and ash, and thus establish dates for nearby fossils, like this 1.8 -millionyear-old hominid skull. The potassium isotope...
Study smarter with the SolutionInn App