Question

Bill has just returned from a duck hunting trip. He has brought home eight ducks. Bill’s friend, John, disapproves of duck hunting, and to discourage Bill from further hunting, John has presented him with the following cost estimate per duck:

  

Camper and equipment:
Cost, $1,200; usable for eight seasons; 10 hunting trips per season	$	120
Travel expense (pickup truck):
100 miles at $0.38 per mile (gas, oil, and tires—$0.26 per mile; depreciation and insurance     —$0.12 per mile)		38
Shotgun shells (two boxes)		15
Boat:
Cost, $2,400, usable for eight seasons; 10 hunting trips per season		30
Hunting license:
Cost, $60 for the season; 10 hunting trips per season		6
Money lost playing poker:
Loss, $34 (Bill plays poker every weekend)		34
Bottle of whiskey:
Cost, $15 (used to ward off the cold)		15
Total cost	$	220
Cost per duck ($220 ÷ 8 ducks)	$	28

  

Required:
1.	Assuming that the duck hunting trip Bill has just completed is typical, what costs are relevant to a decision as to whether Bill should go duck hunting again this season?

     

2.	Suppose that Bill gets lucky on his next hunting trip and shoots 10 ducks in the amount of time it took him to shoot 8 ducks on his last trip. How much would it have cost him to shoot the last two ducks?

Answer 1

1. The relevant costs for a decision as to whether Bill should go duck hunting again this season are: the gas, oil, and tires @ $0.26 per mile in the travel expense; shotgun shells; and the cost of a bottle of whiskey. These costs will only be incurred if Bill goes duck hunting again and hence are relevant to the decision.

Gas, oil and tires (100 x $0.26)	26
Shotgun shells	15
Cost of a bottle of whiskey	15
Total relevant costs $	56

The camper and equipment cost, depreciation and insurance of pickup truck, boat cost, and cost of hunting license are all already incurred sunk costs and hence irrelevant.

Money lost playing poker is also an irrelevant cost since it remains constant irrespective of the decision and will be incurred whether Bill goes hunting or stays at home.

2. The cost to Bill to shoot the last two ducks will be nil as he will not incur any additional cost for shooting the ducks. The only relevant cost with respect to the number of ducks shot is the shotgun shells however, since that remains the same, there is no extra cost for shooting the last two ducks.