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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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Cost Definitions

Luisa Giovanni is a student at New York University. To help pay her way through college, Luisa started a dog walking service. She has 12 client dogs—six are walked on the first shift (6:30 A.M. and 5:00 P.M.), and six are walked on the second shift (7:30 A.M. and 6:00 P.M.). Last month, Luisa noted the following:

  1. 1. Purchase of three leashes at $10 each (she carries these with her in case a leash breaks during a walk).
  2. 2. Internet service cost of $40 a month. This enables her to keep in touch with the owners, bill them by email, and so on.
  3. 3. Dog treats of $50 to reward each dog at the end of each walk.
  4. 4. A heavy-duty raincoat and hat for $100.
  5. 5. Partway through the month, Luisa’s friend, Jason, offered her a chance to play a bit role in a movie that was shooting on location in New York City. The job paid $100 and would have required Luisa to be on location at 6:00 A.M. and to remain for 12 hours. Regretfully, Luisa turned it down.
  6. 6. The dog owners pay Luisa $250 per month per dog for her services.

Required:

  1. 1. At the end of the month, how would Luisa classify her Internet payment of $40—as a cost on the balance sheet or as an expense on the income statement?
  2. 2. CONCEPTUAL CONNECTION Which of the above items is an opportunity cost? Why?
  3. 3. What price is charged? What is Luisa’s total revenue for a month?

1.

To determine

Classify the internet payment of Person L at the end of the month as a cost or an expense.

Explanation

Cost:

Cost can be defined as the cash and cash equivalent incurred against the products or its related services which will benefit the organization in the future. There are two types of costs that are direct and indirect costs...

2.

To determine

Describe the item which is considered as an opportunity cost and the reason behind it.

3.

To determine

Calculate the amount of price charged and the total revenue for the month.

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