Joseph Giovine Owns a Successful Hole-In-The-Wall Bagel Shop Called Peach

question 105

Essay

Joseph Giovine owns a successful hole-in-the-wall bagel shop called Peach Tree Bagels.Joseph wants to expand the shop by leasing the space next door for $1,000 per month and adding tables and chairs so that customers can dine in.He figures that the tables and chairs will cost $5,000 and that the bagel machine,which cost $4,500 five years ago,will have to be scrapped in favour of a larger machine costing $7,400.He thinks sales will increase by $5,500 per month.Variable costs are 55% of sales. A. What are the relevant costs and benefits of expanding into the new space?
B. What are the irrelevant costs and benefits of expanding into the new space?

---

Definitions:

Equivalent Units

A method in cost accounting used to compute the work done by the production in terms of fully manufactured units, considering both completed and in-progress goods.

Weighted-average

A calculation that takes into account the varying degrees of importance of the numbers in a data set, giving weight to each number based on its significance.

Labor

The human effort, both physical and mental, used to produce goods or services, which is typically compensated by wages.

Equivalent Unit

A measure used in cost accounting to express the amount of work done on a product in terms of fully completed units.