Do It! Review 20-1 Nathan T Corporation is comparing two different options. Nath

Question

Do It! Review 20-1 Nathan T Corporation is comparing two different options. Nathan T currently uses Option 1, with revenues of $48,000 per year, maintenance expenses of $3,700 per year, and operating expenses of $19,200 per year. Option 2 provides revenues of $44,000 per year, maintenance expenses of $3,700 per year, and operating expenses of $16,300 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" Net Income Option 1 Option 2 Increase (Decrease) Sunk (S) Revenues Maintenance expenses Operating expenses Equipment upgrade Opportunity cost

Explanation / Answer

Option 1 Option 2 Net Income increase(decrease) Sunk Revenues 48000 44000 -4000 NA Maintenance 3700 3700 0 NA Operating Expenses 19200 16300 2900 NA Equipment Upgrade 13000 S Opportunity Cost 3000 3000 NA 1900

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