Auburn Banking and Loan Company has a graphic design department that designs loan forms and other documents
Question:
Required
Analyze the following four independent cases:
a. Assume there is no allocation of graphic design costs to the subsidiaries. Jobs requested by the subsidiaries are completed promptly (generally by the next business day). How does the allocation (which is zero) compare to the opportunity cost of using design services?
b. Assume there is no allocation of graphic design costs to the subsidiaries. Jobs requested by the subsidiaries generally take weeks to complete; the subsidiaries often go outside the company for design services. How does the allocation (which is zero) compare to the opportunity cost of using design services?
c. Assume subsidiaries receive an allocation of $60 per design hour. Jobs requested by the subsidiaries generally take weeks to complete; the subsidiaries often go outside the company for design services rather than wait for jobs to be completed. They generally pay $80 per hour outside the company. How does the allocation ($60 per design hour) compare to the opportunity cost of using design services?
d. Assume subsidiaries receive an allocation of $60 per design hour. Although the graphic design department is busy, jobs requested by the subsidiaries are completed promptly (generally by the next business day). How does the allocation ($60 per design hour) compare to the opportunity cost of using design services?
Opportunity Cost
Opportunity cost is the profit lost when one alternative is selected over another. The Opportunity Cost refers to the expected returns from the second best alternative use of resources that are foregone due to the scarcity of resources such as land,...
Fantastic news! We've Found the answer you've been seeking!
Step by Step Answer:
Related Book For
Question Posted: