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IMANET Exam CMA Topic 6 Question 99 Discussion
Topic #: 6
Condensed monthly operating income data for Korbin, Inc for May follows:
Additional information regarding Korbin's operations follows:
* One-fourth of each store's direct fixed costs would continue if either store is closed.
* Korbin allocates common fixed costs to each store on the basis of sales dollars.
* Management estimates that closing the Suburban Store would result in a 10% decrease in the Urban Store's sales, while closing the Urban Store would not affect the Suburban Store's sales.
* The operating results for May are representative of all months. Korbin is considering a promotional campaign at the Suburban Store that would not affect the Urban Store. Increasing annual promotional expense at the Suburban Store by $60,000 in order to increase this store's sales by 10% would result in a monthly increase (decrease) in Korbin's operating income during the year (rounded) of
An opportunity cost is the maximum benefit forgone by using a scarce resource for a given purpose and not for the next-best alternative. In capital budgeting, the most basic application of this concept is the desire to place the company's limited funds in the most promising capital project(s).
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