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LO.1-LO.3 (Relevant Costs Sunk Costs) Prior To The 2009 Super Bowl, A Phoenixarea Retailer Ordered

The retailer is left with 15,000 unsold t-shirts that say "Arizona Cardinals - 2009 Super Bowl Champs" after their team lost the Super Bowl. They paid $11.75 per shirt originally. They can either rework the shirts at $5.50 each and sell them for $10.25, sell them for scrap at $2.60 each, or dispose of them otherwise. The sunk costs are the original $11.75 per shirt cost. Reworking the shirts has the highest expected profit at $4.75 per shirt over scrap value.

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Charles MK Chan
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1K views1 page

LO.1-LO.3 (Relevant Costs Sunk Costs) Prior To The 2009 Super Bowl, A Phoenixarea Retailer Ordered

The retailer is left with 15,000 unsold t-shirts that say "Arizona Cardinals - 2009 Super Bowl Champs" after their team lost the Super Bowl. They paid $11.75 per shirt originally. They can either rework the shirts at $5.50 each and sell them for $10.25, sell them for scrap at $2.60 each, or dispose of them otherwise. The sunk costs are the original $11.75 per shirt cost. Reworking the shirts has the highest expected profit at $4.75 per shirt over scrap value.

Uploaded by

Charles MK Chan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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ABA202A COST AND MANAGERIAL ACCOUNTING


CHAPTER 10 EXERCISE

QUESTION 12
LO.1LO.3 (Relevant costs; sunk costs) Prior to the 2009 Super Bowl, a Phoenixarea retailer ordered
50,000 T-shirts that read: Arizona Cardinals2009 Super Bowl Champs. The company paid $11.75 for each
of the custom T-shirts. Following the loss of Arizona to the Pittsburgh Steelers, the retailer found itself with
15,000 unsold T-shirts after the Super Bowl. Before the Super Bowl, the retailer was able to sell 35,000 of
the T-shirts at an average per-unit price of $25. The company is currently deciding how to dispose of the
15,000 remaining T-shirts. The retailer has learned from one of its suppliers that each shirt could be
reworked at an average cost of $5.50 per shirt (which involves removing the Super Bowl reference from the
shirts). Management of the retailer believes the reworked shirts could be sold at an average price of $10.25
during the coming football season. Alternatively, the company could sell the shirts at an average price of
$2.60 as scrap material.
a. Identify at least three alternative courses of action management could take with regard to the leftover
T-shirts.
b. Which costs are sunk in this decision?
c. Identify the relevant costs of each alternative you listed in part (a).
d. Based on your answer to part (c), what is the best alternative and what is the relative financial
advantage of the best alternative over the second-best alternative?
Answer:

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