Juanita makes $30 an hour at work. She has to take time off work to purchase her dress, so each hour away from work costs her $30 in lost income. Assume that returning to work takes Juanita the same amount of time as getting to a store and that it takes her 30 minutes to shop. As you answer the following questions, ignore the cost of gasoline and depreciation of her car when traveling. Assume that it takes 15 minutes to travel to the local department store, 30 minutes to travel to the store across town, and 60 minutes to travel to the store in the neighboring city. Complete the following table by computing the opportunity cost of Juanita's time and the total cost of shopping at each location.

Store Opportunity Cost of Time (Dollars) Price of a Suit (Dollars per suit) Total Cost (Dollars)
Local Department Store 114
Across Town 86
Neighboring City 60

Assume that Juanita takes opportunity costs and the price of the suit into consideration when she shops. Juanita will minimize the cost of the suit of she buys it from the

Juanita should purchase the suit at the store across town because the total economic cost will be lowest.

Explanation:

three options:

local store 15 minutes away and a price of $114 across town 30 minutes away and a price of $86 neighboring city 1 hour away and a price of $60

Juanita makes $30 per hour at her work, and her purchase decision includes the opportunity cost of lost wages:

total economic cost:

local store = $114 + [1/4 hours x 2 (round trip) x $30] + (1/2 hours x $30 spent shopping) = $144 across town = $86 + [1/2 hours x 2 (round trip) x $30] + (1/2 hours x $30 spent shopping) = $131 neighboring city = $60 + [1 hour x 2 (round trip) x $30] + (1/2 hours x $30 spent shopping) = $135

Juanita should purchase the skirt at the store across town because the total economic cost will be lowest ($131)

Opportunity costs are the benefits lost or extra costs incurred for choosing one activity or investment over another alternative. Economic costs include both accounting costs and opportunity costs.

1.a $ - 550 (F)

1.b $ -2784 (U)

2.a $ 1,160 (U)

2.b $ 192(U)

Explanation:

1a)Fixed overhead spending variance = Actual fixed overhead -Budgeted fixed overhead

                                                      = 556250 -556800

                                                     = $ - 550 (F)

b)Fixed overhead volume variance= standard cost for actual output - budgeted cost

                                              = (4.64*119400)-556800

                                               = 554016-556800

                                              =$ -2784 (U)

**standard fixed cost = 556800/120000 = 4.64

2a)Variable overhead spending variance= Actual variable cost - standard cost for actual output

                                                    = 230600 - (.48*478000)

                                                 = 230600 -229440

                                                  = $ 1,160 (U)

**standard variable rate = (787200-556800)/480000=.48 per hour

b)variable overhead efficiency variance = Actual Hours*Standard rate per hour -standard hours *standard rate per hour

                                               = (478000*.48) -(477600*.48)

                                               = 229440-229248

                                              = 192(U)

**standard rate per hour =Budgeted variable overhead /Standard hours

                                    = (787200-556800)/480000

                                   = 230400/480000

                                  = .48 per hour

**Standard hours for actual output-If 480000 hours are required to produce to make 120000 units then to make 119400 units , 480000*119400/120000 = 477600 hours required