Normal 1 No Font case stuay: megastar Sortware) Part A-Opportunity & Relevant co

Question

Normal 1 No Font case stuay: megastar Sortware) Part A-Opportunity & Relevant costs Megastar Software recently developed new spreadsheet software, Ad-Soon, which it intends to market by mail through ads in computer magazines. Just prior to introducing Ad-Soon, Megastar received an unexpected offer from Vision Computer Company to buy all rights to the software for £4 million cash. Instructions 1- Is the EA million offer "relevant" financial information? Why? (6 marks) 2- Describe Megastar's opportunity cost if it: a- accepts Vision Company's offer and (6 marks) b- Turns down the offer and markets Ad-Soon itself. (6 marks) c-Would these opportunity costs be recorded in Megastar's accounting records? (6 marks) 3- Briefly describe the extent to which the pound sterling amounts of the two opportunity costs described in part 2 are known to management at the time tlie decision is made to accept or reject Vision Company's offer. (6 marks) 4- Might there be any other opportunity costs to consider at the time of the making this decision? If so, explain briefly. (18 marks) S- Explain why opportunity costs represent a common source of error in making cost analyses.( LISH (UNITED STATES

Explanation / Answer

1. yes the 4million offer is a relevant financial information because its gives an idea of minimum price to be charged of AD-soon if marketed by mail throudh ads in computer magzines. Now, 4million offer is the minimum price to be charged

2a. Opportuinity cost would be none.

2b. opportuinity cost would be vision's company offfer of 4million.

2c. no these opportuinity cost would not be recorded in Megastar's accounting record

3. only relevant cost i.e cost of developing the software is known while accepting or rejecting the vision's company software.

4. Relevant cost of software i.e cost of deeloping a software should also be considered while making the decision because the relevant cost is the minimum price to be charged for the software.

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