Question

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

  

Camper and equipment:
Cost, $1,200; usable for eight seasons; 10 hunting trips per season	$	120
Travel expense (pickup truck):
100 miles at $0.38 per mile (gas, oil, and tires—$0.26 per mile; depreciation and insurance     —$0.12 per mile)		38
Shotgun shells (two boxes)		15
Boat:
Cost, $2,400, usable for eight seasons; 10 hunting trips per season		30
Hunting license:
Cost, $60 for the season; 10 hunting trips per season		6
Money lost playing poker:
Loss, $34 (Bill plays poker every weekend)		34
Bottle of whiskey:
Cost, $15 (used to ward off the cold)		15
Total cost	$	220
Cost per duck ($220 ÷ 8 ducks)	$	28

  

Required:
1.	Assuming that 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 that Bill gets lucky on his next hunting trip and shoots 10 ducks in the amount of time it took him to shoot 8 ducks on his last trip. How much would it have cost him to shoot the last two ducks?

     

Answer 1

Answer

1.

Relevant cost is that cost which is important for decision making.

We will consider that cost which is Variable in Nature i.e. we will not consider that cost which is Fixed in Nature like License Cost as they are already incurred which is irrelevant for this.

Relevant Cost = Travelling Expenses + Shotgun Shell Cost + Whiskey Cost

= (100 Miles * $0.26 per mile) + $15 + 15

Relevant Cost = $56

2.

The Cost will be Nil, as the Relevant Cost is not based on Duck i.e. It does not matter how much duck he will shoot, the cost will be same as Cost is based on trip not on Duck.

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