Rebecca Logan
Week 1 Homework

Chapter 1
Exercise 14
In this situation, the opportunity cost is only the incremental revenue versus the costs to stay open. The revenues are $2500, while the costs total $1500. Rent and depreciation of office equipment are not included in this analysis because those costs will be incurred regardless of whether the company stays open on Saturday or not.
Problem 2
a. The total variable costs for producing an additional 50,000 jars (375,000 jars total) are $480,000. The incremental costs for the additional 50,000 jars are $64,000.
b. If Santiago’s reduces the price by $.40, they would sell an additional 50,000 jars. This would bring in a revenue of $1,725,000, versus $1,625,000 if they sell at $5 per jar. The incremental revenue would be the additional revenue ($100,000) – the incremental costs ($64,000), which equals $36,000.
c. Santiago’s should lower the prices, as the incremental revenue would be more than the incremental costs.
Problem 4
a. It would definitely be useful to investigate both increases. For the increase in the cost of merchandise, we should investigate to see specifically which merchandise we spent more on. We did have an increase in sales, but we need to make sure we are spending money on merchandise that is selling more. We also need to investigate the salaries of sales staff to make sure that the salaries that were higher than we expected were paid to sales staff that was also bringing in additional revenue.
b. Storewide electricity would be controllable to a certain extent. It would be useful to include a share of storewide electricity cost on the performance report for sporting goods so that the sporting goods manager can make sure this department is only using the necessary amount of electricity.

Chapter 2
Exercise 9
a. Job 201- $3470
Job 202-$1000
Job $203- $1260