Seeking to find gainful part-time employment, Sarah Spencer is choosing between two job offers. The first, a sales position at a department store, pays a flat salary of $8 per hour. As Sarah plans to work 80 hours per month, she expects to earn $640 per month. The second job, at a stereo store, pays a monthly salary of $400 for a 1/2 time position (20 hours per week or 80 hours per month) plus commissions. The store manager informs Sarah that, on average, 1/2 time salespeople earn commissions of $300 per month.

Both job sites are about 25 miles from Sarah’s home, and Sarah estimates that, regardless of the position taken, she will incur about $125 in travel costs per month. Sarah currently shares an apartment with three friends. Her share of the rent and utilities is $250 per month.

Required:

a. Classify the following costs and benefits as to their controllability and relevance for Sarah’s decision:

(1) Job salaries;

(2) Commissions;

(3) Transportation costs;

(4) Rent and utilities.

b. Using controllable costs and benefits, estimate the value and opportunity cost of Sarah’s two decision options.

c. Evaluate Sarah’s decision using relevant costs and benefits.