Chapter 2, Problem 59P

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?