Question

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

Camper and equipment:
Cost, $17,000; usable for eight seasons; 8 hunting trips per season	$	266
Travel expense (pickup truck):
100 miles at $0.42 per mile (gas, oil, and tires—$0.26 per mile; depreciation and insurance—$0.16 per mile)		42
Shotgun shells (two boxes per hunting trip)		20
Boat:
Cost, $2,240, usable for eight seasons; 8 hunting trips per season		35
Hunting license:
Cost, $60 for the season; 8 hunting trips per season		8
Money lost playing poker:
Loss, $22 (Bill plays poker every weekend whether he goes hunting or stays at home)		22
Bottle of whiskey:
Cost, $20 per hunting trip (used to ward off the cold)		20
Total cost	$	413
Cost per duck ($413 ÷ 8 ducks)	$	52

  

Required:

1. Assuming 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 Bill gets lucky on his next hunting trip and shoots 8 ducks using the same amount of shotgun shells he used on his previous hunting trip to bag 8 ducks. 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.

The camper and equipment cost, depreciation and insurance of pickup truck, cost of boat, 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.