Question CT 15.7, Considering Your Costs and Benefits,is the basis for discussion pertaining to chapter 15. What are yourthoughts? Would you include charges for those costs, or would younot include them? Please provide support for yourview.
CT15.7 After graduating, you might decide to start a smallbusiness. As discussed in this chapter, owners of any business needto know how to calculate the cost of their products. In fact, manysmall businesses fail because they don't accurately calculate theirproduct costs, so they don't know if they are making a profit orlosing money—until it's too late.
Suppose that you decide to start a landscape business. You usean old pickup truck that you've fully paid for. You store the truckand other equipment in your parents' barn, and you store trees andshrubs on their land. Your parents will not charge you for the useof these facilities for the first two years, but beginning in thethird year they will charge a reasonable rent. Your mother helpsyou by answering phone calls and providing customers withinformation. She doesn't charge you for this service, but she planson doing it for only your first two years in business. In pricingyour services, should you include charges for the truck, the barn,the land, and your mother's services when calculating your productcost? The basic arguments for and against are as follows.
- YES: If you don't include charges for thesecosts, your costs are understated and your profitability isoverstated.
- NO: At this point, you are not actuallyincurring costs related to these activities; therefore, youshouldn't record charges.
Instructions
Write a response indicating your position regarding thissituation. Provide support for your view.
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