Question

Exercise 12-16 Identification of Relevant Costs [LO12-1]

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, $20,000; usable for eight seasons; 14 hunting trips per season	$	179
Travel expense (pickup truck):
100 miles at $0.44 per mile (gas, oil, and tires—$0.30 per mile; depreciation and insurance—$0.14 per mile)		44
Shotgun shells (two boxes per hunting trip)		30
Boat:
Cost, $2,160, usable for eight seasons; 14 hunting trips per season		19
Hunting license:
Cost, $70 for the season; 14 hunting trips per season		5
Money lost playing poker:
Loss, $30 (Bill plays poker every weekend whether he goes hunting or stays at home)		30
Bottle of whiskey:
Cost, $15 per hunting trip (used to ward off the cold)		15
Total cost	$	322
Cost per duck ($322 ÷ 8 ducks)	$	40

  

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 14 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 six ducks?

Answer 1

All cost which have already been incurred are irrelevant as those are sunk cost and can not be reduced even if Bill decides to not go hunting. If those items could have been sold if "no hunting" option of chosed then their selling price become relevent, but as the question does not suggest any such selling price we treat all of such cost irrelevant.

1

Relevant cost for going again this season

Relevant/irrelevant

Amount

Camper & Equipment

Sunk cost/ irrelevant

0

Travel expenses:

Gas oil tire (0.30)

Relevant

33

Depreciatoin ((0.14)

irrelevant

Shotgu shells

Relevant

30

Boat

Sunk cost/ irrelevant

Hunting License

Sunk cost/ irrelevant

Poker

irrelevant

Bottle of whisky

Relevant

15

Total relevant cost

78

2

Using relevant cost : Cost of last 6 ducks

As all relevant cost are for standard 8 ducks per trip, cost of additional 6 ducks is zero.