Calculate sunk cost, irrelevant cost and differential cost. Dempster Limited pur

Question

Calculate sunk cost, irrelevant cost and differential cost.

Dempster Limited purchased a delivery truck three years ago for $17,000 and has been using it in the business since then. The truck is being depreciated for accounting purposes on a straight-line basis and the amount of depreciation claimed has been $3,000 per year. Annual operating/maintenance costs for the truck have averaged $7,500 per year. The company is considering the purchase of a new truck. The list price of the new truck is $23,500 and the truck dealer has agreed to accept the old truck as a trade-in at a value of $5,000: Therefore the net cost of the new truck will be $18,500. Operating/maintenance costs for the new truck are estimated at 6,200 per year. 23560 ne

Explanation / Answer

1. France is labor abundant and germany is capital abundant because the capital labor ratio in france (2050/916) is less than that in Germany. ( 816/270)

2. In Germany, there is a total of 816 units of capital out of which 366 is used is used in wine which means the rest of it i.e 816 - 366 = 450 units are used in car industry and hence car industry is more capital intensive as 450 is greater than 366. While on the other hand, there is a total of 270 units of labor or of which 135 is used in wine and rest 135 is used in car and hence both car and wine industry are equally capital intensive

3. Without free trade, relative price of wine will be cheaper in France because france is a labor abundant country and wine is a labor intensive good

4. Wine is a labor intensive good while car is a capital intensive good. France is abundant in labor and hence will produce and export wine which is labor intensive while germany which is capital abundant will produce car. Since resources are allocated efficiently in free trade, the relative price of wine will fall in both france ans germany

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.