L. Prepare a differential analysis as of July 1 presenting the proposed operation of the store for the 15 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). If an amount is zero, enter "0". If required, use a minus sign to indicate a loss. Line Item Description Revenues Costs: Differential Analysis Operate Retail Store (Alt. 1) or Invest in Bonds (Alt. 2) July 1 Costs to operate store Cost of equipment less residual value Profit (loss) Feedback Operate Retail Store (Alternative 1) Invest in Bonds (Alternative 2) Differential Effects (Alternative 2) ✓ Check My Work Subtract the operating costs and the cost of the equipment less the residual value from the revenues from operating the store. Determine the bond investment interest income for 15 years (principal x rate x time). Determine the differential effect on income of the revenues, costs, and profit (loss) by subtracting alternative 2 from alternative 1. Which alternative has the most desirable effect on income? 2. Based on the results disclosed by the differential analysis, should the proposal be accepted? ✓ Yes 3. If the proposal is accepted, what would be the total estimated operating income of the store for the 15 years?

L. Prepare a differential analysis as of July 1 presenting the proposed operation of the store for the 15 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). If an amount is zero, enter "0". If required, use a minus sign to indicate a loss. Line Item Description Revenues Costs: Differential Analysis Operate Retail Store (Alt. 1) or Invest in Bonds (Alt. 2) July 1 Costs to operate store Cost of equipment less residual value Profit (loss) Feedback Operate Retail Store (Alternative 1) Invest in Bonds (Alternative 2) Differential Effects (Alternative 2) ✓ Check My Work Subtract the operating costs and the cost of the equipment less the residual value from the revenues from operating the store. Determine the bond investment interest income for 15 years (principal x rate x time). Determine the differential effect on income of the revenues, costs, and profit (loss) by subtracting alternative 2 from alternative 1. Which alternative has the most desirable effect on income? 2. Based on the results disclosed by the differential analysis, should the proposal be accepted? ✓ Yes 3. If the proposal is accepted, what would be the total estimated operating income of the store for the 15 years?

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter11: Differential Analysis And Product Pricing

Section: Chapter Questions

Problem 1PA: Differential analysis involving opportunity costs On August 1, Rantoul Stores Inc. is considering...

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