Scenario Brad Winston is the owner and operator of Fishing Unlimited, a charter fishing business operated out of Oregon Inlet, NC. Brad has been taking groups of guests offshore to fish for tuna and marlin for over 15 years. He purchased his current fishing boat when he started the business, but now believes that a larger and better outfitted vessel would allow him to increase the rate he charges per charter. Currently he can carry a maximum of 6 guests while the larger boat will carry up to 8. The larger boat would also require him to take 2 deck hands on each outing, providing better service to his customers. Cost data for Brad's business is shown in the table below. Fishing Unlimited Annual straight-line depreciation on boat $ 8,300 ($175,000 original cost – $90,000 estimated resale value/20 years) Fuel Cost (per hour) Insurance Premium (annual) Maintenance and Repairs (annual) Fishing Tackle and Gear (original cost) Tackle and Bait (per guest) Deck Hand wages (per hour) Dock Fees (annual) Captain's License (annual) Food and Beverages (per guest) Professional Fees (per year) Dock Utilities (annual) $ $ 1,900 $ 3,500 $ 7,000 $ 20 $ $ 2,400 $ 200 $ $ 750 $ 1,200 50 20 25 Brad has someone interested in purchasing his existing boat for $80,000. He could use this cash as a deposit on the new boat which will cost him $225,000. His banker estimates the payments on the new boat will be about $1,500. The new boat is more fuel efficient and he believes he can cut his fuel costs by 10% but the more expensive boat will increase his insurance premium by 12%. He is also concerned that he will have to change to a larger boat slip which would increase his dock fees by 5%. The good thing about the new boat is that he should save on maintenance and repairs, at least for the first 3 years. The only other expense Brad would incur with the new boat is adding some additional fishing tackle and gear to accommodate larger parties that he estimates would cost him about $1,500. His fees for both the old and the new boat are as follows: Old Boat New Boat $ $ $ $ 4 hours 550 600 6 hours 650 700 Full Day (9 hours) $ 1,100 $ 1,200

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
Question

 

Please refer to the attached scenario

Which costs are relevant to Brad’s decision to purchase a new, larger boat?

Scenario
Brad Winston is the owner and operator of Fishing Unlimited, a charter fishing business
operated out of Oregon Inlet, NC. Brad has been taking groups of guests offshore to fish for
tuna and marlin for over 15 years. He purchased his current fishing boat when he started
the business, but now believes that a larger and better outfitted vessel would allow him to
increase the rate he charges per charter. Currently he can carry a maximum of 6 guests
while the larger boat will carry up to 8. The larger boat would also require him to take 2
deck hands on each outing, providing better service to his customers. Cost data for Brad's
business is shown in the table below.
Fishing Unlimited
Annual straight-line depreciation on boat
$ 8,300
($175,000 original cost – $90,000 estimated resale value/20 years)
Fuel Cost (per hour)
Insurance Premium (annual)
Maintenance and Repairs (annual)
Fishing Tackle and Gear (original cost)
Tackle and Bait (per guest)
Deck Hand wages (per hour)
Dock Fees (annual)
Captain's License (annual)
Food and Beverages (per guest)
Professional Fees (per year)
Dock Utilities (annual)
$
$ 1,900
$ 3,500
$ 7,000
$
$
$ 2,400
$ 200
50
20
20
25
$ 750
$ 1,200
Brad has someone interested in purchasing his existing boat for $80,000. He could use this
cash as a deposit on the new boat which will cost him $225,000. His banker estimates the
payments on the new boat will be about $1,500. The new boat is more fuel efficient and he
believes he can cut his fuel costs by 10% but the more expensive boat will increase his
insurance premium by 12%. He is also concerned that he will have to change to a larger
boat slip which would increase his dock fees by 5%. The good thing about the new boat is
that he should save on maintenance and repairs, at least for the first 3 years. The only other
expense Brad would incur with the new boat is adding some additional fishing tackle and
gear to accommodate larger parties that he estimates would cost him about $1,500.
His fees for both the old and the new boat are as follows:
Old Boat
New Boat
$
$
$
$
4 hours
550
600
6 hours
650
700
Full Day (9 hours)
$ 1,100
$ 1,200
Transcribed Image Text:Scenario Brad Winston is the owner and operator of Fishing Unlimited, a charter fishing business operated out of Oregon Inlet, NC. Brad has been taking groups of guests offshore to fish for tuna and marlin for over 15 years. He purchased his current fishing boat when he started the business, but now believes that a larger and better outfitted vessel would allow him to increase the rate he charges per charter. Currently he can carry a maximum of 6 guests while the larger boat will carry up to 8. The larger boat would also require him to take 2 deck hands on each outing, providing better service to his customers. Cost data for Brad's business is shown in the table below. Fishing Unlimited Annual straight-line depreciation on boat $ 8,300 ($175,000 original cost – $90,000 estimated resale value/20 years) Fuel Cost (per hour) Insurance Premium (annual) Maintenance and Repairs (annual) Fishing Tackle and Gear (original cost) Tackle and Bait (per guest) Deck Hand wages (per hour) Dock Fees (annual) Captain's License (annual) Food and Beverages (per guest) Professional Fees (per year) Dock Utilities (annual) $ $ 1,900 $ 3,500 $ 7,000 $ $ $ 2,400 $ 200 50 20 20 25 $ 750 $ 1,200 Brad has someone interested in purchasing his existing boat for $80,000. He could use this cash as a deposit on the new boat which will cost him $225,000. His banker estimates the payments on the new boat will be about $1,500. The new boat is more fuel efficient and he believes he can cut his fuel costs by 10% but the more expensive boat will increase his insurance premium by 12%. He is also concerned that he will have to change to a larger boat slip which would increase his dock fees by 5%. The good thing about the new boat is that he should save on maintenance and repairs, at least for the first 3 years. The only other expense Brad would incur with the new boat is adding some additional fishing tackle and gear to accommodate larger parties that he estimates would cost him about $1,500. His fees for both the old and the new boat are as follows: Old Boat New Boat $ $ $ $ 4 hours 550 600 6 hours 650 700 Full Day (9 hours) $ 1,100 $ 1,200
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 2 steps

Blurred answer
Knowledge Booster
Relevant cost analysis
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education