Question

Sunglow estimates that each blocked road results in lost revenue of $4,500 per event unless all three roads are blocked. When all three roads are blocked, the estimated lost revenue is $35,000 for that day. Sunglow estimates that weather will be similar in Year 2. It can retain a snowplow service for $50,000 annually to clear blocked roads. The variable cost of operating the snowplow is $500 per day per blocked road. If Sunglow uses a snowplow service in Year 2, the estimated benefit would be

Answer 1

Answer:

$127,500

Explanation:

The computation of the estimated benefit is given below;

In the case when the sunglow does not applied the service in the year 2, so the loss in revenue is

= $4500 per day per road × 1 road × 16 days + $4500 per day per road × 2 roads × 10 days + $35000 × 1 day

= $72,000 + $90,000 + $35,000

= $197,000

Now in the case when it applied the service in year 2, so the expenses incurred is  

= $50,000 + $500 per day per blocked road × 1 road × 16 days + $500 per day per blocked road × 2 roads × 10 days + $500 per day per blocked road × 3 roads × 1 day

= $50,000 + $8,000 + $10,000 + $1,500

= $69,500

So, the net benefit is  

= $197,000 - $69,500

= $127,500