To locate an error in a trial balance, a. re-add. b. look for ...

[kwoodring]

To locate an error in a trial balance,
 a. re-add.
  b. look for the correct location of normal balances.
  c. verify figures transferred from the account to the trial balance.
  d. check footings and balances of the accounts.
  e. do all of these.

Question 2

Opportunity costs and relevant costs
 
  Jason Wu operates Exclusive Limousines, a fleet of 10 limousines used for weddings, proms, and business events in Washington, D.C. Wu charges customers a flat fee of 250 per car taken on contract plus an hourly fee of 80. His income statement for May follows:
 
   All expenses are fixed, with the exception of driver wages and benefits and fuel costs, which are both variable per hour. During May, the company's limousines were fully booked. In June, Wu expects that Exclusive Limousines will be operating near capacity. Shelly Worthington, a prominent Washington socialite, has asked Wu to bid on a large charity event she is hosting in late June. The limousine company she had hired has canceled at the last minute, and she needs the service of five limousines for four hours each. She will only hire Exclusive Limousines if they take the entire job. Wu checks his schedule and finds that he only has three limousines available that day.
 
  Required:
  1. If Wu accepts the contract with Worthington, he would either have to (a) cancel two prom contracts each for 1 car for 6 hours or (b) cancel one business event for three cars contracted for two hours each. What are the relevant opportunity costs of accepting the Worthington contract in each case? Which contract should he cancel?
  2. Wu would like to win the bid on the Worthington job because of the potential for lucrative future business. Assume that Wu cancels the contract in part 1 with the lowest opportunity cost, and assume that the three currently available cars would go unrented if the company does not win the bid. What is the lowest amount he should bid on the Worthington job?
  3. Another limousine company has offered to rent Exclusive Limousines two additional cars for 300 each per day. Wu would still need to pay for fuel and driver wages on these cars for the Worthington job. Should Wu rent the two cars to avoid canceling either of the other two contracts?

[Toya9913]

Answer to Question 1

E

Answer to Question 2

1. If Wu cancels the two prom contracts, the opportunity cost of accepting the Worthington job would be 886.40, as follows:

Lost revenue (2  250) + (12 hrs.  80) 1,460.00
Less variable costs
Driver wages and benefits (35  12 hrs.) 420.00
Fuel costs (12.80  12 hrs.) 153.60
Opportunity cost  886.40
Driver wages and benefits are 35/hour (43,750  1,250 hours)
 Fuel costs are 12.80/hour (16,000  1,250 hours)

If Wu cancels the business event contract, the opportunity cost would be 943.20, as follows:

Lost revenue (3  250) + (6 hrs.  80) 1,230.00
Less variable costs
Driver wages and benefits (35  6 hrs.) 210.00
Fuel costs (12.80  6 hrs.) 76.80
Opportunity cost  943.20

Driver wages and benefits are 35/hour (43,750  1,250 hours)
 Fuel costs are 12.80/hour (16,000  1,250 hours)

Wu should cancel the prom contracts because the opportunity cost would be lower by 56.80 (943.20  886.40).

2. If Wu cancels the two prom contracts, opportunity cost equals 886.40. In addition, variable costs of the 20-hour Worthington job would be (20 hrs.  35) + (20 hrs.  12.80) = 956. Therefore, the minimum amount Wu would bid is 1,842.40 (886.40 + 956).

3. Yes, it would be in Wu's best interest to lease the additional cars for a total of 600 because it is less than the opportunity cost of 886.40.