The Randal Company has a computer division plus two other divisions, A, and B that use...

 

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The Randal Company has a computer division plus two other divisions, A, and B that use computer services. The computer division has fixed costs of $100 per day and variable costs of $40 per computer hour for the first 8 hours and $60 per computer hour for additional hours. The firm has decided not to allocate fixed costs since it knows that such an allocation may distort the incentives of the user divisions in their decisions on whether or not to use additional computer hours. Division A is now using 5 hours per day and is not contemplating any change in its computer use. Division B is using 2 hours per day but has just become aware of two additional jobs that could save Division B labor costs. Job one uses 2 hours of computer time and will reduce division B's labor costs by $118; job two uses 1 hour of computer time and would reduce Division B's labor costs by $55. 1. Suppose the firm charged B $40 per hour. Which additional job(s) would Division B wish to implement? By how much would Division B's profits increase? By how much would the firm's profits increase? 2. Suppose the firm charged B $60 per hour. Which additional job(s) would Division B wish to implement? By how much would Division B's profits increase? By how much would the firm's profits increase? 3. From the firm's point of view, which jobs should B accept? By how much will the firm's profits The Randal Company has a computer division plus two other divisions, A, and B that use computer services. The computer division has fixed costs of $100 per day and variable costs of $40 per computer hour for the first 8 hours and $60 per computer hour for additional hours. The firm has decided not to allocate fixed costs since it knows that such an allocation may distort the incentives of the user divisions in their decisions on whether or not to use additional computer hours. Division A is now using 5 hours per day and is not contemplating any change in its computer use. Division B is using 2 hours per day but has just become aware of two additional jobs that could save Division B labor costs. Job one uses 2 hours of computer time and will reduce division B's labor costs by $118; job two uses 1 hour of computer time and would reduce Division B's labor costs by $55. 1. Suppose the firm charged B $40 per hour. Which additional job(s) would Division B wish to implement? By how much would Division B's profits increase? By how much would the firm's profits increase? 2. Suppose the firm charged B $60 per hour. Which additional job(s) would Division B wish to implement? By how much would Division B's profits increase? By how much would the firm's profits increase? 3. From the firm's point of view, which jobs should B accept? By how much will the firm's profits

Answer rating: 100% (QA)

A Relevant costs are to be considered for decisionmaking Relevant costs are those future cash flows which will arise as a direct result of the decision on hand selecting job 1 or job 2 or both for com... View the full answer