A. The table below lists each category and states whether the cost is relevant, if it is an implicit or explicit cost, and if the cost has been properly calculated (note: company is currently operating at 65% capacity). Cost category | Relevant | Implicit/Explicit | Calculated correctly? | Fully allocated capital cost1 | N | Explicit | Y | Direct labor cost2 | Y | Explicit | Y | Materials Purchased3 | Y | Explicit | Y | Materials Inventoried4 | Y | Implicit | N: 25,000 lbs x $9/per lb = $225,000 | Managerial overhead5 | N | Implicit | Y | Profit margin6 | N | Implicit | Y |
1. Fully allocated capital cost * Relevant— This cost is not relevant since it cannot be …show more content…
Cost category | Relevant | Implicit/Explicit | Calculated correctly? | Fully allocated capital cost1 | N | Explicit | Y | Direct labor cost2 | Y | Explicit | Y | Materials Purchased3 | Y | Explicit | Y | Materials Inventoried4 | Y | Implicit | N: 25,000 lbs x $9/per lb = $225,000 | Managerial overhead5 | Y | Implicit | Y | Profit Margin6 | Y | Implicit | Y | 1. Fully allocated capital cost * Relevant— No. This cost is not relevant since it cannot be avoided if the company decides against this project. * Explicit—This cost is explicit since it is an out of pocket cost that the company would pay regardless of whether or not they accepted the project. * Calculated correctly—Yes. 2. Direct labor cost * Relevant—Yes. This cost is relevant to the project since it can be avoided by not undertaking the project. * Explicit— This cost is explicit since it is an out of pocket cost that the company would pay workers for labor. * Calculated correctly—Yes. 3. Materials Purchased * Relevant— Yes. This cost is relevant to the project since the company can avoid purchasing new materials by not undertaking the project. * Explicit—This is an out of pocket cost that the company would have to pay for to take on the project to purchase additional materials. * Calculated correctly—Yes. 4. Materials Inventoried * Relevant— Yes. This cost is relevant to the project