Relevent cost

This is just a template that may help you work through this problem. You do not have to use this and
Name of Cost
Residence Hall
Apartment
1a
1b
Costs that a irrelevant are….. Because….
1c
Name of cost
TOTAL
Residence Hall
$$$
Apartment
Name of cost
0
TOTAL
1d
The living arrangement that is better for Beth is……. Because….
2a-2c
Cost Name
3
4
2a
2b/2c
Level of Certainty Where to obtain or why cost is estimated
You do not have to use this and you can modify any way you choose.
Apartment
$$$
0
why cost is estimated
Relevant Costs and Budgeting
You can earn up to 10 points to add to your homework grade.
Assignment Introduction: This exercise is meant to get you thinking about managerial decision making
but in a more personal context. Much of it can be intuitive and conversations with group members will
help. While some parts have right/wrong answers, several parts are more open.
Scenario:
Beth Pearson is deciding where to live during her second year in college. During her first year, she lived
in the residence hall. Recently her friend Rachel asked her to share an off-campus apartment for the
upcoming school year. Beth likes the idea of living in an apartment, but she is concerned about how
much it will cost.
To help her decide what to do, Beth collected information about costs. She would pay $400 per month
in rent. The minimum lease term on the apartment is six months. Each semester is 4 months, with a 1
month break. Beth estimates that her share of the utility bills will be $75 per month. She also estimates
that groceries will cost $200 per month. Beth spent $350 on a new couch over the summer. If she lives
in the residence hall, she will put the couch in storage at a cost of $35 per month. Beth expects to spend
$7,500 on tuition and $450 on books each semester. Room and board at the residence hall would cost
Beth $2900 per semester (four months). This amount includes a food plan of 20 meals per week which is
nonrefundable if the meals are not eaten.
Directions: Suppose Beth asks for your advice. Ultimately you should come to a well-supported
recommendation detailing your reasons. Answering the following questions will help you to get to that
point. I have provided your group an excel template posted in your group Wiki page to guide you to
answer the questions. You may adjust the spreadsheet anyway you like. A final document must be
turned in by only ONE group member in the group assignment section. Please include all group member
names.
1. Use ONLY the cost information collected by Beth for the following tasks:
a. List all the costs for each option. Note that you may need to list some costs under both
options
b. Review your lists and cross out the costs that are irrelevant to Janet’s decision and
explain why they are irrelevant.
c. Calculate and compare the total relevant costs of each option
d. Given the cost comparison, which living arrangement is the better choice for Beth?
Explain.
2. Identify uncertainties about the costs collected by Beth.
a. Determine whether each cost is likely to be (i) known for sure, (ii) estimated with little
uncertainty, or (iii) estimated with moderate or high uncertainty
b. For each cost that is known for sure, explain where Beth would obtain the information.
c. For each cost that must be estimated, explain why the cost cannot be known for certain.
3. List additional information that might be relevant to Beth’s decision (list as many items as you
can)
a. Costs not identified by Beth
b. Factors (including uncertainties) other than costs
4. Explain why conducting a cost comparison is useful to Beth, even if factors other than costs are
important to her decision.
See suggested template in excel.