Sample Economics Essays on Relevant Costs

Relevant Costs

A business name is a significant aspect of any entity as it helps create a foundation, design, and uniqueness of the enterprise. From the case provided, the diversification of activities has prompted a need to change the name of the business from “Summer Lawn Care” to “Lawn and Tree Care”. The strategy promises to increase both the profitability and the competitiveness of the company. On the contrary, the use of a new name presents different risks considering the market base it has created over the years. One of the partners argues that a change in name necessitates other changes as well, such as business cards and vehicle painting, which may increase the overall costs of the firm.

Understandably, changing the name of a company has implications that may limit its operations. Some of these disadvantages include legal expenses, changing of communication and advertisement materials and changing the level of brand loyalty. Besides, there is extra administrative work which pertains to tax payment. Moreover, the company may incur other different costs including sunk, opportunity cost, tangible and intangible, direct and marginal overheads (Collier, 2015). Sunk expenses are those that have already been incurred by the business and cannot be recovered. These include costs such as rent paid and wages. In the case under study, the loss incurred on sunk costs due to the change of the name would not be much since there is only an added dimension to the business, and not a total change or relocation of business. However, the business cards that have already been printed and the signages can be considered as sunk costs.

The company may also incur implicit and explicit costs. The former include expenses that have already been incurred and are not shown as separate overheads and may include the cost of any decision made by the partners (Collier, 2015) and the time and effort spent on research regarding winter grass installation. The change in the company name would definitely increase explicit costs. These costs are clear and tangible. In this case, there is an expansion of business, which may necessitate hiring of new resources, taking a bigger place on rent, and, of course, changing the signages and business cards. Also, the acquiring of the new technology and its installation is an explicit cost.

Before implementing some of the decisions, the partners should evaluate the relevant and irrelevant costs that might be incurred. Notably, the latter include overheads that cannot change the operations of the firm while the former represent expenses that determine the growth objectives and financial strength of the institution. From the case, some of the irrelevant costs incurred include, opportunity and sunk costs while the relevant expenses comprise of tax, salaries and the explicit overheads.  Through identification of the two aspects, the partners will be able to develop a proper plan and to assess the level of risk available in the decision.

A final decision on changing the name or not will have to be taken, after calculating all the costs and seeing if they outweigh the estimated potential business profit or not.



Collier, P. M. (2015). Accounting for managers: Interpreting accounting information for decision making. John Wiley & Sons.