Question

Juanita earns $65,000 annually as a marketing specialist in Mexico City, Mexico. She has applied for admission to the M.B.A program at Dalhousie University. If accepted, she will resign and move to Halifax, Nova Scotia. Juanita has assembled the following data to make the decision:

Juanita's annual salary	$65,000
Annual tuition and fees	13,200
Annual book and supply expense	3,300
Monthly living expenses in Mexico City	920
Monthly living expenses in Halifax	1,700
Monthly auto expenses in Mexico city	362
Monthly auto expenses in Halifax	362
Cost of two business suits purchased just prior to resigning	630
Moving expenses	5,800

Required:

a) Calculate the following in the context of Juanita's decision:

(i) Total sunk costs (if any) (2 marks)
(ii) Total differential or incremental costs (if any) (6 marks)
(iii) Total opportunity costs (if any) ( 2 marks)

b) What is your best estimate of the total cost to Juanita of earning an M.B.A. degree if it will take her 12 months to complete the program? (5 marks)
c). Suppose you are Juanita. What specific additional information would you need in order to make a rational decision to pursue and successfully complete the MBA program at Dalhousie? Explain. (4 marks)

Answer 1

Requirement a $ $ 630 (i) Total sunk costs (Cost of two business suits purchased just prior to resigning) 780 (ii) Total Differential or incremental costs Additional Monthly living expenses in Halifax (1700-920) Additional Monthly auto expenses in Halifax (362-362) Differential or incremental costs per month Annual Differential or incremental costs (780*12) $ $ $ $ 780 9,360 $ 65,000 (ii) Total Opportunity costs (Juanita's Annual salary) Requirement b Annual tuition and fees Annual book and supply expenses Moving expenses Annual differential or incremental costs Total opportunity costs Total cost to Juanita for MBA degree $ $ $ $ $ $ 13,200 3,300 5,800 9,360 65,000 96,660 Requiremento The cost side estimate is complete. But to decide whether I should pursue MBA or not, one of the important information required would be the salary that I would receive after I complete the MBA degree. If the salary is sufficient enough to compensate for the total cost of $96,660; then I would pursue the MBA degree.