Question

Nathan T Corporation is comparing two different options. Nathan T currently uses Option 1, with revenues of $49,000 per year, maintenance expenses of $3,800 per year, and operating expenses of $19,800 per year. Option 2 provides revenues of $46,000 per year, maintenance expenses of $3,800 per year, and operating expenses of $16,700 per year. Option 1 employs a piece of equipment which was upgraded 2 years ago at a cost of $13,000. If Option 2 is chosen, it will free up resources that will bring in an additional $3,000 of revenue. Complete the following table to show the change in income from choosing Option 2 versus Option 1. Designate Sunk costs with an “S” otherwise select "NA".

Answer 1

14 Answer: Net income Increase OptionOption 2 Sunk (S) (Decrease) 15 16 Revenues 17 Maintenance 18 19 E 20 Opportunity cost 21 $49.000S46,000 $3,800 $19,800$16,700 SO SO S3,000 NA S3,100 NA $3,000 $3,800 $01 NA atin $13,000 $3,000 ade NA S3,100

14 Answer: Net income Increase tion 2 Sunk (S) NA NA NA (Decrease) 15 16 Revenues 17 Maintenance 18 19 E 20 Opportunity cost 21 49000 46000 C16-B16 3800 19800 16700 3800 B17-C17 B18-C18 atin ade 13000 0 3000 0 B20-C20 D16+D17+D18+D20 NA