Spreadsheet Modeling & Decision Analysis: A Practical Introduction to Business Analytics (MindTap Course List)
Spreadsheet Modeling & Decision Analysis: A Practical Introduction to Business Analytics (MindTap Course List)
8th Edition
ISBN: 9781305947412
Author: Cliff Ragsdale
Publisher: Cengage Learning
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Question
Chapter 4, Problem 1QP
Summary Introduction

To determine: The person who is right and justify the reason.

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Explanation of Solution

Given information:

Spreadsheet Modeling & Decision Analysis: A Practical Introduction to Business Analytics (MindTap Course List), Chapter 4, Problem 1QP

Person H’s accountant argues that the AS requires 9 labor hours and the profit margin should be $144 less. Similarly, HL requires 6 labor hours and the profit margin should be $96 less.

Determine the person who is right and justify the reason:

According to the given information, the numbers of Person H is correct and the argument of Person H’s accountant is wrong. This is because, the factory overhead cost is a fixed cost and it is not a variable cost. The factory overhead cost is sunk cost that must be paid irrespective of the type of hot tub produced.

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