Heather Alburty purchased a previously owned, 2004 Grand Am for $8900. Since purchasing the car, she has spent the following amounts on parts and labor: New stereo system $1,200 Trick paint 400 New wide racing tires 800 Total $2,400 Unfortunately, her new stereo doesn't completely drown out the sounds of a grinding transmission. Apparently, the Grand Am needs a considerable amount of work to make it reliable transportation. Heather estimates that the needed repairs include the following: Transmission overhaul $2,000 Water pump 400 Master cylinder work 1,100 Total $3,500 In a visit to a used car dealer, Heather has found a 2005 Neon in mint condition for $9,400. Heather has advertised and found that she can sell the Grand Am for only $6,400. If she buys the Neon, she will pay cash, but she would need to sell the Grand Am. Conceptual Connection: In trying to decide whether to restore the Grand Am or to buy the Neon, Heather is distressed because she already has spent $11,300 on the Grand Am. The investment seems too much to give up. How would you react to her concern? Assuming that Heather would be equally happy with the Grand Am or the Neon, should she buy the Neon, or should she restore the Grand Am?
Heather Alburty purchased a previously owned, 2004 Grand Am for $8900. Since purchasing the car, she has spent the following amounts on parts and labor: New stereo system $1,200 Trick paint 400 New wide racing tires 800 Total $2,400 Unfortunately, her new stereo doesn't completely drown out the sounds of a grinding transmission. Apparently, the Grand Am needs a considerable amount of work to make it reliable transportation. Heather estimates that the needed repairs include the following: Transmission overhaul $2,000 Water pump 400 Master cylinder work 1,100 Total $3,500 In a visit to a used car dealer, Heather has found a 2005 Neon in mint condition for $9,400. Heather has advertised and found that she can sell the Grand Am for only $6,400. If she buys the Neon, she will pay cash, but she would need to sell the Grand Am. Conceptual Connection: In trying to decide whether to restore the Grand Am or to buy the Neon, Heather is distressed because she already has spent $11,300 on the Grand Am. The investment seems too much to give up. How would you react to her concern? Assuming that Heather would be equally happy with the Grand Am or the Neon, should she buy the Neon, or should she restore the Grand Am?
Managerial Accounting: The Cornerstone of Business Decision-Making
7th Edition
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Chapter8: Tactical Decision-making And Relevant Analysis
Section: Chapter Questions
Problem 51E: Keep or Buy, Sunk Costs Heather Alburty purchased a previously owned, 2004 Grand Am for 8,900. Since...
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Heather Alburty purchased a previously owned, 2004 Grand Am for $8900. Since purchasing the car, she has spent the following amounts on parts and labor:
New stereo system $1,200
Trick paint 400
New wide racing tires 800
Total $2,400
Unfortunately, her new stereo doesn't completely drown out the sounds of a grinding transmission. Apparently, the Grand Am needs a considerable amount of work to make it reliable transportation. Heather estimates that the needed repairs include the following:
Trick paint 400
New wide racing tires 800
Total $2,400
Unfortunately, her new stereo doesn't completely drown out the sounds of a grinding transmission. Apparently, the Grand Am needs a considerable amount of work to make it reliable transportation. Heather estimates that the needed repairs include the following:
Transmission overhaul $2,000
Water pump 400
Master cylinder work 1,100
Total $3,500
Water pump 400
Master cylinder work 1,100
Total $3,500
In a visit to a used car dealer, Heather has found a 2005 Neon in mint condition for $9,400. Heather has advertised and found that she can sell the Grand Am for only $6,400. If she buys the Neon, she will pay cash, but she would need to sell the Grand Am.
Conceptual Connection: In trying to decide whether to restore the Grand Am or to buy the Neon, Heather is distressed because she already has spent $11,300 on the Grand Am. The investment seems too much to give up. How would you react to her concern? Assuming that Heather would be equally happy with the Grand Am or the Neon, should she buy the Neon, or should she restore the Grand Am?
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