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Summer Lawn Care Name Change

Toby Kilbourn

4/12/2016 4:21:27 PM

To effectively evaluate Summer Lawn Care's name change decision it is important to define the different costs involved which include explicit, implicit, and sunk costs. Douglas (2012) defines present-period explicit costs as outlays of cash used to pay for variable or fixed inputs that are required to implement a business decision. In contrast, implicit costs is a cost that represents a lost opportunity to leverage a company's resources, excluding cash, to generate revenue. Implicit costs are also defined as intangible costs as they are difficult to quantify (Investopedia.com, 2016). Additionally, Douglas (2012) defines a sunk cost as "Previously paid for purchases of assets including land, buildings, plant and equipment, and depreciation expenses based on these" (p. 179). Sunk costs are prepaid and therefore unrecoverable expenses. Finally, the three cost categories need to be segregated into relevant and irrelevant costs. According to Douglas (2012), relevant costs are a consequence of the decision while irrelevant costs are not associated with the business decision in any way. Table 1 shows the different cost and their respective categories for the proposed name change of Summer Lawn Care.  

Table 1 

The relevant explicit costs associated with changing the name of Summer Lawn Care include new vehicle paint, business cards, revised advertisements, and a new yellow page ad. The relevant implicit costs associated with not changing the business name include lost tree cutting revenue and unused tree cutting equipment. The sunk cost associated with the business are irrelevant to the decision and can be ignored for our purposes.  

Though there are multiple explicit cost associated with changing the company name almost all of those costs can be considered minor expenditures. There are two potential moderate to large outlays which are new vehicle paint and new advertisements (signs), both of which could easily cost a few thousand dollars depending on the quality and quantity required. In contrast to the low to moderate cost required to change the company name, losing work and revenue due to a customer base that does not know you offer a specific service could be very costly. Losing even one tree cutting job could cost thousands. Additionally, the scenario indicates that Summer Lawn Care has already purchased and used the required equipment for their tree cutting service. Thus this expenditure should be included in equipment as a sunk cost and could be underutilized if the company does not advertise. With the tree cutting equipment already purchased and the potential for lost revenue Summer Lawn Care should change their company name immediately. 

Reference 

Douglas, E. (2012). Managerial Economics. San Diego, CA: Bridgepoint Education   

Investopedia.com. (2016). Implicit Cost. Retrieved from  http://www.investopedia.com/terms/i/implicitcost.asp

Relevant Costs

Derek Aguilar

4/12/2016 8:25:11 PM

            The problem with the name Summer Lawn Care is that it restricts the scope of what the consumer perceives the business to be.  Changing the name to Lawn and Tree Care would expand the scope of the business  and publicize the fact that they are not restricted to a single season.  The addition of the word ‘Tree” also indicates that they are a complete service and not restricted to only lawn care.  Changing the name, redesigning a logo and ordering new business cards or stationary is going to be very expensive in the short-term.  However, the long term benefits from the name change will generate more business and increase profits. 

            Relevant costs are those that are specific to management decisions and could be irrelevant in another situation or would differ depending on the given circumstances.  These costs are generally future costs, involve cash flow and are incremental.  To make effective decisions regarding relevant costs, irrelevant and sunk costs must be ignored.  Irrelevant costs are those that will not change based on management decisions or would be present regardless of which decision is made.  A sunk cost is one that has already been incurred and cannot be recovered.
            In the case of Summer Lawn Care, the money already invested in the business cards, signage and advertisements are sunk costs and should not be considered in the decision to change the name.  the only costs that should be considered would be the relevant costs of new business cards, signage and advertisements against the potential for future revenue. 

Douglas, E.J. (2012). Managerial Economics. San Diego, CA: Bridgepoint Education, Inc.

Retrieved from the Ashford library.