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Chapter 6 Relevant Information for Special Decisions
6-1
Answers to Questions

1. Information that is relevant for decision making differs between
the alternatives and is future oriented.

2. A variable cost may or may not be relevant. The fact that a cost
is variable has no bearing on its relevance. For instance, the
cost of direct labor is usually considered a variable cost in the
decision as to how many products to produce. But labor costs
in another decision context may be irrelevant. For instance, in a
decision as to which of two products to produce when labor
cost is the same for both, the cost of labor becomes irrelevant
(it is now unavoidable). Also, variable costs that are historical
in nature would not be relevant.

3. Costs can be classified into the following levels:
(1) Unit-level costs - Costs that are incurred each time a compa-
ny makes a product or performs a service. These costs can
be avoided by eliminating the production of a single unit of
product or service.
(2) Batch-level costs - Costs related to the production of more
than one product or performance of more than one service
that are organized into batches and completed at the same
time. Batch-level costs are eliminated when the batch of
work is eliminated. When a batch is eliminated, unit-level
costs associated with the units in a batch are also eliminat-
ed.
(3) Product-level costs - Costs that are incurred to support spe-
cific kinds of products or services. Product-level costs are
eliminated when the product line is discontinued.
(4) Facility-level costs - Costs that are incurred on behalf of the
entire business. These costs are usually totally eliminated
when the business is dissolved or they can be partially elim-
inated when a segment of the business that is in a separate
facility is eliminated.

Chapter 6 Relevant Information for Special Decisions
6-2
4. Information does not have to be entirely accurate to be relevant
for decision making. Knowing that a future cost can be avoided
makes the cost relevant even if the exact amount is unknown.
Relevance is the predominant characteristic. Precision only
enhances relevance. Irrelevant data, no matter how precise, is
useless to decision making.

5. The conclusion is invalid because it fails to consider the im-
portance of qualitative data. Factors such as company reputa-
tion, employee morale, and customer satisfaction are not quan-
tifiable, but are crucial to the survival of most businesses.

6. The president appears to be overlooking the concept of a sunk
cost. His company has already incurred a $50,000 loss. The
fact that it has not recognized the loss does not mean that the
loss has not been incurred. The loss in market value cannot be
avoided by borrowing the money for operating activities. The
loss (sunk cost) is not relevant and should not be considered.
What is important to the decision is whether Carmon today
would invest $250,000 by purchasing Mann Stock or would the
funds be better invested in operating activities? If the answer is
invest in operating activities, then Carmon should sell the Mann
stock instead of borrowing the funds.

7. An opportunity cost is the sacrifice of some benefit (revenues,
cost savings) that is given up by not choosing an alternative.
Opportunity costs are relevant in decisions where the a c-
ceptance of one alternative precludes the possibility of accept-
ing other alternatives. Since opportunity costs are future ori-
ented, they are avoidable and relevant for decision making even
though the costs are not recorded in accounting records. Sunk
costs are costs that have been previously recorded in financial
accounting records. They are historical in nature and therefore
unavoidable and not relevant for decision making.

8. The checking account is not truly free. There is an opportunity
cost associated with the account. For example, by leaving a
$500 minimum balance in a checking account, the depositor is
giving up the opportunity to earn the interest that would accrue
if the funds were placed in a savings account.

Chapter 6 Relevant Information for Special Decisions
6-3
9. The original costs of the two machines represent sunk costs
and should not be considered in the decision regarding which
machine to replace. Differential costs are relevant when they
apply to future considerations.

10. Some fixed costs are avoidable. For example advertising costs
may be fixed regardless of the volume of activity. However,
they may be curtailed or eliminated at management’s discretion.
Whether a cost is avoidable or not is context sensitive to the
decision under consideration.

11. Numerous qualitative characteristics could apply to special
order decisions. Two specific considerations are: (1) the effects
on regular customers who may learn that they are paying higher
prices than those charged on the special order and (2) the ca-
pacity effects on profitability. When idle capacity no longer ex-
ists, special order customers must be rejected or profitability
will suffer. Capacity should not be used to produce special or-
ders that are usually sold at lower prices unless there is idle
capacity. The fact that rejection may lead to hard feelings that
affect the business’ reputation is also a consideration.

12. The allocated depreciation, warehousing costs, and property
taxes will be the same regardless of whether products are pro-
duced or purchased. Accordingly, these items would not be
relevant to a make-or-buy decision.

13. The two factors that should be considered in allocating shelf
space are per unit contribution margin and turnover.

14. The relevant costs are the additional costs that will be incurred
as a result of accepting the special order. These are the unit-
level costs such as materials, labor, and overhead associated
with the special order and the batch-level costs that are neces-
sary to fill the special order batch.

15. It may be possible for a company to purchase a product or
service at a price below what it would cost to make the product
or provide the service. This could result from differences in
wage rates, economies of scale, technological competence and
specialization between companies.

Chapter 6 Relevant Information for Special Decisions
6-4
16. If the fixed costs that Ms. Meyers is referring to are avoidable
fixed costs, increases in production volume would result in de-
creases in the avoidable cost per unit to produce the drives. If
volume increases enough to reduce the production cost per
unit below the cost to outsource, Ms. Meyers’ point is valid.

17. Qualitative factors that should be considered include: (1) the
availability of reliable suppliers that can comply with quality
standards and delivery schedules, (2) the possibility of low-ball
pricing where the supplier accepts a low price for the out-
sourced product until the manufacturer becomes dependent
and then the supplier raises the price, (3) the internal effects
such as employee displacement and the possibility of morale
problems with remaining employees which can affect productiv-
ity, and (4) the difficulty of reestablishing production capacity if
the supplier relationship does not work out.

18. While it may appear from the segment’s reports that it is operat-
ing at a loss, this is not necessarily the case. When a segment
is eliminated, some of the costs assigned to that segment may
still continue. Some of the facility-level costs that have been
arbitrarily allocated to the segment may still be incurred after
the segment is eliminated. Therefore, these costs should not be
considered in an elimination decision. Only the costs that can
be avoided by the elimination of the segment are relevant to the
decision. If the revenue generated by the segment exceeds
avoidable costs, the segment is contributing to the overall prof-
itability of the company and should not be eliminated.

19. Replacing the old machine could result in lower operating in-
come in the first year of the replacement if the old machine is
sold at a loss. The loss would affect profitability and may occur
when the manager is under significant pressure to maximize
profits. The financial benefits of the new machine will not ap-
pear in operating reports until the second year of its use, too
late for the supervisor that needs immediate results. Under
these conditions, the supervisor may sacrifice long-run profita-
bility for short-run rewards.

Chapter 6 Relevant Information for Special Decisions
6-5
20. Constraints are caused by resources that are limited. Examples
of these business resources include: labor hours, material
quantities, shelf space, warehouse space, machine capacity,
and machine hours.

Exercise 6-1A

Cost Item Relevance Behavior

Cost per box Relevant Variable
Sales commissions per box Irrelevant Variable
Rent of display space Irrelevant Fixed
Advertising Relevant Fixed

Since sales commissions per box and the rental cost do not differ
between the alternatives, they cannot be avoided regardless of
which alternative is chosen. Accordingly, these costs are not
relevant.

Chapter 6 Relevant Information for Special Decisions
6-6
Exercise 6-2A

Cost Items Relevance Behavior

Materials cost ($9 per unit) Relevant Variable
Company president’s salary Irrelevant Fixed
Depreciation on manufacturing equipment Irrelevant Fixed
Customer billing costs (1% of sales) Irrelevant Variable
Rental cost of manufacturing facility Relevant Fixed
Advertising costs ($200,000 per year) Irrelevant Fixed
Labor cost ($8 per unit) Relevant Variable
Sales commissions (1.50% of sales) Irrelevant Variable
Salaries of administrative personnel Irrelevant Fixed
Shipping and handling ($0.50 per unit) Irrelevant Variable
Depreciation on office furniture Irrelevant Fixed
Manufacturing supplies ($0.25 per unit) Relevant Variable
Production supervisor’s salary Relevant Fixed

All unit-level manufacturing costs (materials, labor, manufacturing
supplies) are relevant because they could be avoided if the products
were purchased instead of manufactured. Similarly, it is highly probable
that the product-sustaining and facility-sustaining costs that are asso-
ciated with making the products (production supervisor’s salary and
rental of manufacturing facility) can be avoided. In contrast, selling
expenses and administrative costs (president’s and other administra-
tors’ salaries, billing cost, advertising, sales commissions, shipping
and handling) are not avoidable because Castro will continue to incur
these costs regardless of whether it makes the product or buys it from a
supplier. Accordingly, these costs are not relevant to the outsourcing
decision. Similarly, the depreciation expenses on manufacturing
equipment and office furniture are not relevant. These expenses consti-
tute sunk costs that cannot be avoided because they have already been
incurred.

Chapter 6 Relevant Information for Special Decisions
6-7
Exercise 6-3A

a.
Fixed Costs Bracelet A Bracelet B
Advertising cost $ 7,500 $5,000
Depreciation on existing equipment 5,000 4,000
Total fixed costs $12,500 $9,000

b.
Variable Costs Bracelet A Bracelet B
Cost of materials per unit $16 $ 30
Cost of labor per unit 32 32
Total variable costs $48 $62

c.
Avoidable Costs Bracelet A Bracelet B
Cost of materials per unit $ 16 $ 30
Advertising cost 7,500 5,000

Exercise 6-4A

Cost Description Cost Classification
Salary of company president Facility-level cost
Research and development cost Product-level cost
Factory lawn care cost Facility-level cost
Cost of patent Product level cost
Startup cost to change color of a product Batch-level cost
Cost of resetting sewing machines to change shirt size Batch-level cost
Real estate tax for the factory Facility-level cost
Direct labor Unit-level cost

Chapter 6 Relevant Information for Special Decisions
6-8
Exercise 6-5A

a. By holding on to his business, Mr. Brimer is losing the opportunity
to sell it. Accordingly, the opportunity cost of owning and operat-
ing the independent business is $73,000.

b. Mr. Brimer can continue to operate his independent taxi company.
Alternatively, he can sell the business, invest the proceeds, and
go to work as a dispatcher. The financial considerations of the
two alternatives are shown below:

Decision
Independent
Business
Work As
Dispatcher

Opportunity cost $(73,000)
Cost of investment $(73,000)
Business income 60,000
Investment income ($73,000 x .10) 7,300
Salary 55,000

The opportunity cost and the cost of the investment are not rele-
vant because they do not differ between the alternatives. Accord-
ingly, the differential revenue constitutes the relevant information.
Since Mr. Brimer can earn more by working as a dispatcher
($62,300 as dispatcher versus $60,000 with independent business),
the analysis suggests that he should sell his business.

c. From a qualitative perspective, Mr. Brimer may prefer to keep his
business. His current business offers independence (no boss)
and job security. These factors may be worth the financial sacri-
fices associated with working more hours for less money.

Chapter 6 Relevant Information for Special Decisions
6-9
Exercise 6-6A

The facility-sustaining overhead is not relevant because it will be in-
curred regardless of whether the special order is accepted or rejected.
The differential revenue and avoidable costs are shown below:

Relevant Revenue and Costs
Sales revenue ($2,750 x 40 slabs) $110,000
Cost of raw materials ($1,200 x 40 slabs) (48,000)
Cost of direct labor ($600 x 40 slabs) (24,000)
Contribution to profit $ 38,000

Since differential revenue is greater than avoidable costs, the order
should be accepted.

Exercise 6-7A

Since the product- and facility-sustaining costs do not differ between
the alternatives, they are not avoidable. The differential revenue and
relevant (avoidable) costs are shown below:

Relevant Revenue and Costs
Additional revenue (6,000 x $450) $2,700,000
Unit-level materials (6,000 x $200) (1,200,000)
Unit-level labor (6,000 x $180) (1,080,000)
Unit-level overhead (6,000 x $50) (300,000)
Contribution to profit $ 120,000

Since the acceptance will produce a $120,000 benefit over a decision to
reject, the special order should be accepted.

Exercise 6-8A

Chapter 6 Relevant Information for Special Decisions
6-10

Miko must consider the impact on the company’s existing customers.
The special order customer should be outside Miko’s normal selling
territory so as to avoid demands by existing customers for lower prices.
Also, if the special order customer serves the same clientele as Miko’s
normal customer, the pricing structure of the retail market could be
affected if the special order customer passes on its lower prices to the
retail market. Miko must consider its level of idle capacity. While the
company currently appears to have excess capacity, it must retain
sufficient capacity to satisfy increasing demand in its regular markets.
The company must not lose the opportunity to satisfy regular markets
because it is too busy satisfying the special order market.

Exercise 6-9A

a. The unit-level costs increase and decrease in direct proportion
with changes in the number of units sold and produced. Accord-
ingly, these costs are variable costs. The variable cost per unit is
computed by dividing the total unit-level costs by the number of
units ($190,000 ÷ 25,000 units = $7.60 per unit.) The contribution
margin per unit for the special order is $2.40 ($10 special order
price – $7.60 variable costs). Since the special order will produce
a positive contribution to profit, the order should be accepted as-
suming that Elsea has enough excess capacity to produce addi-
tional units of the product without affecting its existing sales.

b. Incremental revenue ($10 x 8,000 units) $80,000
Variable costs ($7.60 x 8,000 units) 60,800
Contribution to profit $19,200

Exercise 6-10A

Chapter 6 Relevant Information for Special Decisions
6-11
The allocated facility-sustaining costs are not avoidable because they
will be incurred regardless of whether the handlebars are made or out-
sourced. The relevant (avoidable) costs are shown below:

Item Per Unit Total
Cost of materials $15 $150,000
Cost of labor 10 100,000
Overhead 2 20,000
Total cost $27 $270,000

The analysis does not support the president’s conclusion. Since it
would cost more to buy the handlebars ($29 versus $27), Jordan would
be better off to continue to make the handlebars.

Exercise 6-11A

a. The maximum amount that Rimes would be willing to pay is the
amount of production costs that could be avoided if production
were stopped. In other words, the cost of buying the engines
must be equal to or less than the avoidable cost of making them.
Accordingly, the question can be answered by calculating the per
unit avoidable cost of production. The cost of the depreciation on
equipment cannot be avoided because it is a sunk cost that has al-
ready been incurred. Corporate-level facility-sustaining cost will
be incurred regardless of whether engines are purchased or man-
ufactured. Accordingly, the allocated portion of corporate-level
facility-sustaining costs does not differ between the alternatives
and is not avoidable. The relevant (avoidable) costs are as fol-
lows:

Avoidable Costs for Lawn Mower Engines
Cost of materials (20,000 units x $24) $ 480,000
Labor (20,000 units x $26) 520,000
Production supervisor’s salary 85,000
Rental cost of equipment used to make engines 23,000
Total cost to make 15,000 engines $1,108,000

Cost per unit ($1,108,000 ÷ 20,000 units) $55.40

Exercise 6-11A (continued)

Chapter 6 Relevant Information for Special Decisions
6-12
The maximum amount that Rimes would be willing to pay to pur-
chase engines would be $55.40 per unit.

b. The avoidable cost per unit would decrease because the fixed
costs (supervisor’s salary and rental cost of equipment) would be
spread over more units. At 24,000 units, the fixed cost per unit
would be $4.50 [($85,000 + $23,000) ÷ 24,000]. Total avoidable cost
per unit would be: $4.50 fixed cost + $24.00 materials cost + $26.00
labor cost = $54.50. The higher level of production would reduce
the maximum price that Rimes would be willing to pay to outsource
the engines.

Exercise 6-12A

a. The facility-sustaining costs are not avoidable because they will
be incurred regardless of whether the speakers are produced in-
ternally or are outsourced. The relevant (avoidable) costs are
shown below:

Decision Make
Unit-level cost of materials and labor $382,500*
Other avoidable manufacturing costs 89,000
Total avoidable costs $471,500

*$4.50 x 85,000 = $382,500

If Daisuke decides to make the speakers, its cost will be higher
and net income will be lower by $46,500 [i.e., $471,500 – ($5 x
85,000 units)]. In other words, it is cheaper to buy the speakers.

b. Daisuke should consider the following qualitative factors. If
Daisuke makes the speakers, the company will gain control of the
production process. Quality control and scheduling will be in the
hands of Daisuke. The advantages of vertical integration go be-
yond attaining the lowest possible price. Accordingly, Daisuke
may choose to make the speakers even though it is less expensive
to buy them.

Exercise 6-13A

Chapter 6 Relevant Information for Special Decisions
6-13
a. Two-thirds of the product-level and all of the facility-sustaining
costs are not avoidable. These costs are not relevant to the deci-
sion because they will be incurred regardless of whether the con-
tainers are made or purchased. The relevant (avoidable) costs are
shown below.

Avoidable Costs
Unit-level materials $ 6,000
Unit-level labor 6,600
Unit-level overhead costs 4,200
Product-level costs 3,600
Total costs $20,400

Because the cost of buying containers is $25,000 (i.e., $2.50 x
10,000), Freeman would be better off continuing to make them.

b. Freeman is giving up the opportunity to obtain $8,000 of lease
income by continuing to make the containers. This is an oppor-
tunity cost that could be avoided by purchasing the containers.
When this cost is included in the decision, total avoidable costs
($20,400 + $8,000 = $28,400) are greater than the cost to purchase
($25,000). Accordingly, the recommendation made in Requirement
a would change. Under these circumstances, Freeman should
purchase the containers.

Chapter 6 Relevant Information for Special Decisions
6-14
Exercise 6-14A

a. First, identify all of the revenues and costs associated with the
operation of Segment A. These items are listed in the problem un-
der the column labeled Segment A. Remember the two alterna-
tives are to either keep Segment A or to eliminate the segment.
Eliminate the items that do not differ between these alternatives
and the sunk costs. The $44,000 of general fixed costs will con-
tinue regardless of whether the segment is eliminated. Conse-
quently, this cost is not avoidable. Similarly, the depreciation
charge should be removed because it is a sunk cost. The relevant
cost and revenue items are shown below:

Relevant Rev. and Cost items for Segment A
Sales $165,000
Cost of goods sold (121,000)
Sales commissions (15,000)
Advertising expense (3,000)
Effect on income $26,000

The above analysis suggests the segment is contributing $26,000
to the profitability of the company as a whole. This analysis can be
verified by creating comparative company income statements un-
der the two alternatives. The appropriate computations are shown
below:

b.
Decision Keep Seg. A Eliminate Seg. A
Sales $655,000 $490,000
Cost of goods sold (308,000) (187,000)
Sales commissions (59,000) (44,000)
Contribution margin 288,000 259,000
Gen. fixed operating expenses (140,000) (140,000)
Advertising expense (13,000) (10,000)
Net Income $ 135,000 $109,000

Since Segment A contributes $26,000 to profitability it should not
be eliminated.

Exercise 6-15A

Chapter 6 Relevant Information for Special Decisions
6-15

a. The companywide facility-sustaining costs are not avoidable and
therefore not relevant to the elimination decision. The relevant
revenue and cost data are summarized below:

Income Statement
Revenue $250,000
Salaries for drivers (175,000)
Fuel expenses (25,000)
Insurance (35,000)
Division level facility-sustaining costs (20,000)
Contribution to profit $ (5,000)

Since incremental revenue is less than avoidable costs, the seg-
ment should be eliminated, thereby increasing companywide in-
come by $5,000.

b. Since total avoidable costs amount to $255,000, increasing seg-
ment revenue to $270,000 would produce a $15,000 contribution to
profit (i.e., $270,000 – $255,000). Under these circumstances the
segment should not be eliminated.

c. To justify its existence, segment revenue must be at least equal to
avoidable costs. Accordingly, the minimum level of segment rev-
enue in this case is $255,000.

Exercise 6-16A

Chapter 6 Relevant Information for Special Decisions
6-16
The facility-level costs will continue even if the segment is eliminated.
Accordingly, these costs are not avoidable. The original cost, book
value and depreciation for the building represent measures of sunk
costs and are not avoidable. The market value of the building is an
opportunity cost that is avoidable. Likewise, selling the building would
enable the avoidance of the real estate taxes. These and other relevant
(avoidable) costs are listed below.

Advertising expense $ 70,000
Supervisory salaries 150,000
Market value of building (opportunity cost) 80,000
Maintenance costs on equipment 56,000
Real estate taxes on building 6,000
Total $362,000

Exercise 6-17A

The original cost and book value of the old truck are not relevant be-
cause they are sunk costs. The relevant costs are shown below:

Decision
Keep
Old
Replace
With New

Cost of the new truck $26,000
Additional fuel cost (4 x $5,000) $20,000 -0-
Opportunity cost 12,000 -0-
Total costs $32,000 $26,000

The analysis suggests that it costs less to replace the truck than to
continue operating it. Accordingly, the truck should be replaced.

Exercise 6-18A

The original cost and book value of the old machine are different
measures of the same sunk cost and are therefore not relevant. The

Chapter 6 Relevant Information for Special Decisions
6-17
opportunity cost of using the old machine in future accounting peri-
ods is its current market value less its future salvage value ($85,000 –
$10,000 = $75,000). Similarly, using the new machine would cost
$175,000 ($240,000 – $65,000). The relevant (avoidable) cost of oper-
ating each machine for nine years is shown below:

Decision Keep Old
Machine
Purchase
New Machine

Opportunity cost $ 75,000
Purchase price less salvage $175,000
Operating costs 270,000 117,000
Total costs $345,000 $292,000

Since the cost of the new machine is less than the old, the old ma-
chine should be replaced. Stated alternatively, by operating the new
machine, the cost of the old is avoided. To avoid as much cost as
possible, the old machine should be replaced.

Chapter 6 Relevant Information for Special Decisions
6-18
Exercise 6-19A

The opportunity cost of using the existing equipment is its market value
less the salvage value ($60,000 – $20,000 = $40,000). If the old equip-
ment is kept, Adam loses the opportunity to sell it and must pay
$120,000 to operate it. These costs can be avoided by replacing the old
with the new. If Adam buys the new equipment, it will pay $125,000 but
it will get back $20,000 from its salvage value. Accordingly the net cost
is $105,000 ($125,000 – $20,000). If Adam buys the new equipment, it
must pay $80,000 to operate it. The net cost of the new equipment and
its operating expenses can be avoided by keeping the old equipment.
Accordingly, the avoidable costs are summarized below.

Old New
Opportunity cost less salvage $ 40,000
Purchase price less salvage $105,000
Operating expenses 120,000 80,000
Total $160,000 $185,000

Since the relevant costs of operating the new equipment are higher, the
old equipment should be retained.

Chapter 6 Relevant Information for Special Decisions
6-19
Exercise 6-20A

If Bach continues to operate the old machine, it loses the opportunity to
sell it. Accordingly, the current market value of the old machine repre-
sents an opportunity cost that can be avoided if the old machine is
replaced. Similarly, the operating expenses of the old machine can be
avoided if the new machine is purchased. The purchase price of the
new machine and its operating expenses can be avoided if Bach con-
tinues to use the old machine. Accordingly, the avoidable costs are
summarized below.

Decision Keep Old Buy New
Opportunity cost of old machine $ 40,000
Purchase price $150,000
Operating expenses (4 x $50,000) 200,000
Operating expenses (4 x $18,000) 72,000
Total avoidable costs $240,000 $222,000

Since the costs of operating the new machine are lower, the old ma-
chine should be replaced. Stated alternatively, by operating the new
machine, Bach can avoid the cost of the old. Since Bach wants to avoid
as much cost as possible, the old machine should be replaced.

Exercise 6-21A

a. The original cost and book value are sunk costs that are not rele-
vant. The annual opportunity cost computed on a straight-line ba-
sis is as follows: ($95,000 Current market value – $5,000 Salvage)
÷ 4 years = $22,500 per year. Since the annual cost of using the
existing machine is higher than the annual cost of leasing the
equipment, the existing machine should be replaced.

b. The total lease cost over the four-year contract is $80,000 ($20,000
x 4). Since the total cost of the lease is less than the total oppor-
tunity cost ($95,000 Current market value – $5,000 Salvage =
$90,000), the machine should be replaced. The conclusion is the
same as that determined in Requirement a because the same data
apply to both requirements. The only difference is that the data
are annualized in Requirement a while they are presented as cu-
mulative totals in Requirement b.
Exercise 6-22A

Chapter 6 Relevant Information for Special Decisions
6-20
The decision is whether to make corncob pipes or cornhusk dolls. The
per unit contribution margins for the products are shown below:

While the dolls produce a higher contribution margin per unit, consid-
eration must also be given to the quantity that can be produced and
sold. The total contribution margin for each product is shown below:

Based on the total contribution margin, Happy Bauer should produce
and sell pipes instead of dolls.

Problem 6-23A

Decision Pipes Dolls
Revenue $7.50 $10.00
Variable costs 3.00 4.00
Contribution margin $4.50 $ 6.00

Decision Pipes Dolls
Contribution margin (a) $ 4.50 $ 6.00
Units produced and sold (b) 45,000 21,000
Total contribution margin (a x b) $ 202,500 $126,000

Chapter 6 Relevant Information for Special Decisions
6-21
There are many possible answers for each requirement. The following
represents a single example of a correct solution for each part. Stu-
dents’ answers may differ from the ones supplied here.

a. Assume unit-level materials cost differs between two alternative
products. A portion of the materials cost would be avoidable with
respect to a decision regarding which of the products should be
produced. Alternatively, assume that the materials cost does not
differ between the two alternatives. Under these circumstances
the materials cost is not avoidable with respect to a decision re-
garding which of the products should be produced. Since the ma-
terials cost is the same for both alternatives, it cannot be avoided
regardless of which alternative is selected.
b. Assume a special order requires starting a new batch of work. The
setup costs could be avoided by rejecting the special order. In
contrast, assume that the special order can be filled by expanding
the number of units in the current batch of work. Since the current
setup costs have already been incurred, they would be sunk costs
with respect to the special order decision. As such, they would be
unavoidable.
c. Suppose advertising cost is incurred for the benefit of a particular
store of JCPenney. The advertising cost could be avoided if the
store were closed. In contrast, assume that advertising is incurred
for the benefit of JCPenney’s national image. Under these circum-
stances, the advertising could not be avoided by closing any par-
ticular location.
d. Assume a company pays rent on its manufacturing facility. The
rent would be avoidable if a decision were made to eliminate the
manufacturing segment. In contrast, the rent on the building
would be unavoidable with respect to a decision regarding wheth-
er to accept a special order.
e. Consider a decision regarding the replacement of old manufactur-
ing equipment with new equipment. The future depreciation on
the new equipment could be avoided by a decision to retain the
old equipment. However, the depreciation based on the original
cost of the old equipment would be unavoidable because it is
based on a sunk cost.

Problem 6-24A

Chapter 6 Relevant Information for Special Decisions
6-22
a. With respect to a decision regarding the selection of Job A versus
Job B, the differential revenue and the avoidable costs that differ
between the alternatives are relevant. The allocated facility-
sustaining cost is irrelevant because it is incurred to sustain com-
panywide operations. These facility-sustaining costs will be in-
curred regardless of which job is accepted and therefore are not
avoidable. The fact that more of the companywide overhead cost
is allocated to one job than another is irrelevant because the total
companywide overhead cost cannot be avoided regardless of how
it is allocated between jobs. The supervisor’s salary and the in-
surance coverage are not relevant because they do not differ be-
tween the alternatives. Depreciation is a sunk cost and is irrele-
vant. These costs will be the same regardless of which alternative
is accepted. The relevant information is summarized below:

Decision: Job A Job B
Contract price $900,000 $800,000
Unit-level materials (250,000) (220,000)
Unit-level labor (260,000) (310,000)
Unit-level overhead (40,000) (30,000)
Rental equipment costs (26,000) (29,000)
Contribution to profit $324,000 $211,000

Since Job A provides the higher contribution to profit, it should be
accepted.

b. With respect to a decision regarding the acceptance or rejection of
Job B standing alone, changing the decision context changes the
items that are considered relevant. While supervisor’s salary and
insurance costs cannot be avoided by selecting one job over an-
other, they can be avoided by rejecting both jobs. Accordingly,
these costs would be relevant to a decision regarding whether to
accept or reject Job B standing alone. The relevant information
for a Job B only evaluation is shown below:

Problem 6-24A (continued)

Chapter 6 Relevant Information for Special Decisions
6-23
Decision: Job B
Contract price $ 800,000
Unit-level materials (220,000)
Unit-level labor (310,000)
Unit-level overhead (30,000)
Rental equipment costs (29,000)
Supervisor’s salary (116,670)
Insurance cost for job (18,200)
Contribution to profit $ 76,130

Because the contribution to profit is positive, Job B should be
accepted. This problem illustrates the fact that the avoidable cost con-
cept is context sensitive. Under different contexts, the relevant items
for decision making are different. Identifying relevant items is critically
important for proper decision making.

Problem 6-25A

a. The product-level and facility-level costs are not avoidable be-
cause they will be incurred regardless of whether the special order
is accepted. The relevant (avoidable) costs for 500 blankets are:

Production Cost for 500 Blankets

Materials ($20 per unit x 500) $10,000
Labor ($18 per unit x 500) 9,000
Manufacturing supplies ($3 x 500) 1,500
Batch-level costs (1 batch at $4,000) 4,000
Total costs $24,500

Cost per unit = $24,500 ÷ 500 = $49

Levy should reject the special order because the revenue generat-
ed from sales to Rios ($47 per unit) is below the avoidable cost of
production.

Problem 6-25A (continued)

Chapter 6 Relevant Information for Special Decisions
6-24
b. Since the batch-level costs are fixed relative to the number of units
within the relevant range of 1 to 1,000 units, the avoidable cost per
unit will decrease when the number of units increases from 500 to
1,000. The supporting computations are shown below:

Production Cost for 1,000 Blankets

Materials ($20 per unit x 1,000) $20,000
Labor ($18 per unit x 1,000) 18,000
Manufacturing supplies ($3 x 1,000) 3,000
Batch-level costs (1 batch at $4,000) 4,000
Total costs $45,000
Cost per unit = $45,000 ÷ 1,000 = $45

Now the avoidable cost per unit is below the revenue per unit ($47)
that will be generated by accepting the special order. Accordingly,
the special order should be accepted. The decision changes from
reject to accept the special order.

c. Levy must exercise caution to avoid alienating its existing cus-
tomer base. The fact that a motel operator is outside Levy’s nor-
mal marketing channels is a good sign that existing customers will
not be affected. However, if the blankets are marked with an Levy
label, some association between the two markets may emerge.
The association could be positive. A customer may like the hotel
blanket and want one for herself. In contrast, the relationship
could be detrimental. A hotel guest may think hotels buy cheap
blankets, so Levy blankets are cheap. Levy should consider using
a different label for the hotel versus the retail markets. Also, Levy
must consider whether there is adequate productive capacity to
service both markets. It would be unwise to turn down existing
customers because too many blankets were shipped to the special
order market. Levy must warn the special order customer that re-
peat business at reduced prices is not assured. The special order
price is dependent on circumstances that can change. Special or-
der customers should not be permitted to think of themselves as
regular customers.

Problem 6-26A

a. The unit-level costs of production can be avoided if the skin cream
is purchased. Also, it is reasonable to assume that the cost of the

Chapter 6 Relevant Information for Special Decisions
6-25
production supervisor’s salary can be avoided if the production
process is eliminated. Since Koch will continue to market the
product, the selling expenses, product-level advertising cost, and
facility-sustaining costs will continue regardless of whether the
cream is made or purchased. These items cannot be avoided by
purchasing the skin cream. Accordingly, the following items
would be relevant to the make-or-outsource decision.

Avoidable Production Costs for Koch Skin Cream

Unit-level materials costs (15,000 units x $2.00) $ 30,000
Unit-level labor costs (15,000 units x $1.50) 22,500
Unit-level overhead costs (15,000 units x $0.50) 7,500
Skin cream production supervisor’s salary 60,000
Total avoidable costs $120,000

b. The avoidable cost of making the skin cream is $ 8 per unit
($120,000 ÷ 15,000 units). Since the price to purchase is only
$7.20, Koch can reduce costs by purchasing rather than making
the cream. Outsourcing the skin cream would increase income by
$12,000 [$120,000 – ($7.20 x 15,000)].

c. The cost of the supervisor’s salary is fixed relative to the number
of units of skin cream produced and sold. Accordingly, the cost
per unit will decline as sales increase. At 25,000 units production
cost per unit would be ($160,000 ÷ 25,000 = $6.40). Supporting
computations are shown below:

Avoidable Costs of Production
Unit-level materials costs (25,000 units x $2.00) $ 50,000
Unit-level labor costs (25,000 units x $1.50) 37,500
Unit-level overhead costs (25,000 units x $0.50) 12,500
Skin cream production supervisor’s salary 60,000
Total avoidable costs $160,000

Problem 6-26A (continued)

At this level of production the avoidable cost per unit is less to
make ($6.40) than to buy ($7.20). Koch should continue to make
the skin cream. As this problem demonstrates, the decision to

Chapter 6 Relevant Information for Special Decisions
6-26
outsource should consider the possibility of future growth as well
as current production.

d. Before committing to the outsourcing decision, Koch must con-
sider the ability of the supplier to provide the cream in accordance
with the company’s quality standards. Also, Koch must assure it-
self that the product will be delivered on a timely basis. By out-
sourcing, Koch is losing the benefits of vertical integration. The
company is dependent on the supplier’s performance. The loss of
control must be weighed against the benefits of cost minimization.
Koch can protect itself from unreliable suppliers by maintaining a
list of certified suppliers. Koch should provide these suppliers
with incentives for excellent service such as quantity purchases
and rapid payment of invoices in order to gain preferred customer
status.

Problem 6-27A

a. The facility-sustaining costs and 20 percent of the inventory hold-
ing costs stay the same regardless of whether frames are pur-
chased or made. Since these costs do not differ between the al-
ternatives, they are not avoidable. The depreciation expense is a
sunk cost that is not avoidable. However, the $70,000 annual lease
option is an opportunity cost that can be avoided if they stop mak-
ing the frames. The avoidable costs associated with using the ex-
isting equipment to make the frames are shown below:

Chapter 6 Relevant Information for Special Decisions
6-27
Problem 6-27A (continued)

Annual Avoidable Manufacturing Costs for Bicycle Frames

Unit-level materials costs (20,000 units x $30) $ 600,000
Unit-level labor costs (20,000 units x $40) 800,000
Unit-level overhead costs (20,000 x $10) 200,000
Opportunity cost of equipment lease 70,000
Bike frame production supervisor’s salary 70,000
Inventory holding costs ($290,000 x 0.80) 232,000
Total costs $1,972,000

The avoidable cost per unit is $98.60 (i.e., $1,972,000 ÷ 20,000
units). Since this amount is higher than the $85.00 per unit cost to
purchase, CBC should outsource the frames. Outsourcing would
decrease cost and increase profitability by $272,000 [i.e., ($98.60 –
$85.00) x 20,000 units].

b. The avoidable costs of the two alternatives follow:

Avoidable Manufacturing Costs with the Existing Equipment

Unit-level labor Costs (20,000 units x $40) $800,000
Opportunity cost of equipment lease 70,000
Total costs $870,000
Cost per unit $43.50

Avoidable Manufacturing Costs with the New Equipment

Unit-level labor costs (20,000 units x $16*) $320,000
Depreciation cost of the equipment to be purchased** 210,000
Total costs $530,000
Cost per unit $26.50

*$40 x (1 – 60%) = $16
** ($910,000 – $70,000) ÷ 4 = $210,000

Problem 6-27A (continued)

Chapter 6 Relevant Information for Special Decisions
6-28
The depreciation cost of the new equipment is not a sunk cost in
this case because the new equipment has not been purchased yet.
Other things being equal, the avoidable cost of using the existing
equipment is $340,000 ($870,000 – $530,000) greater than that of
using the new equipment. Consequently, replacing the existing
with the new equipment will increase the company’s profit by
$340,000.

c. If the old equipment will be replaced with the new equipment, the
avoidable cost of making the bike frames versus buying them
would be as follows:
Avoidable Manufacturing Costs for Bicycle Frames

Unit-level materials costs (20,000 units x $30) $ 600,000
Unit-level labor costs (20,000 units x $16) 320,000
Unit-level overhead costs (20,000 x $10) 200,000
Depreciation expense on manufacturing equipment 210,000
Bike frame production supervisor’s salary 70,000
Inventory holding costs ($290,000 x .80) 232,000
Total costs $1,632,000

The cost per unit is $81.60 ($1,632,000 ÷ 20,000). If CBC replaces
the old equipment rather than outsourcing, the company will save
$3.40 ($85.00 – $81.60) per bike frame. Accordingly, profitability
would increase by $68,000 ($3.40 x 20,000). The old equipment
should be replaced.

d. Before committing to the outsourcing decision, CBC must consid-
er the ability of the supplier to provide the frames in accordance
with the company’s quality standards. Also, CBC must assure it-
self that the frames will be delivered on a timely basis. By out-
sourcing, CBC is losing the benefits of vertical integration. The
company is dependent on the supplier’s performance. The loss of
control must be weighed against the benefits of cost minimization.
CBC can protect itself from unreliable suppliers by maintaining a
list of certified suppliers. CBC should provide these suppliers
with incentives for excellent service such as quantity purchases
and rapid payment of invoices in order to gain preferred customer
status.

Chapter 6 Relevant Information for Special Decisions
6-29
Problem 6-28A

a.
Children’s
Department
Sales $120,000
Cost of goods sold (70,000)
Gross margin 50,000
Department manager’s salary (24,000)
Sales commissions (18,000)
Contribution to profit $ 8,000

Since the Children’s Department contributes $8,000 to Niklos Boot
Company’s overall profit, the department should not be closed.

b. Income statements before the elimination of the Children’s De-
partment

Men’s
Department
Women’s
Department
Children’s
Department
Company
Total
Sales $500,000 $600,000 $120,000 $1,220,000
Cost of goods sold (210,000) (250,000) (70,000) (530,000)
Gross margin 290,000 350,000 50,000 690,000
Department
manager’s salary

(52,000)

(60,000)

(24,000)

(136,000)
Sales commissions (86,000) (98,000) (18,000) (202,000)
Rent on store lease (21,000) (21,000) (21,000) (63,000)
Store utilities (4,000) (4,000) (4,000) (12,000)
Net income (loss) $127,000 $167,000 $ (17,000) $ 277,000

Problem 6-28A (continued)

Chapter 6 Relevant Information for Special Decisions
6-30
Income statements after the elimination of the Children’s De-
partment

Men’s
Department
Women’s
Department
Company
Total
Sales $500,000 $600,000 $1,100,000
Cost of goods sold (210,000) (250,000) (460,000)
Gross margin 290,000 350,000 640,000
Department
manager’s salary

(52,000)

(60,000)

(112,000)
Sales commissions (86,000) (98,000) (184,000)
Rent on store lease (31,500) (31,500) (63,000)
Store utilities (6,000) (6,000) (12,000)
Net income (loss) $114,500 $154,500 $269,000

The elimination of the Children’s Department results in a reduction
of the company’s total income in the amount of $8,000 ($277,000 –
$269,000). This result confirms the conclusion reached in Re-
quirement a.

c. Since the additional income in the amount of $20,000 is greater
than the $8,000 profit contribution from the Children’s Department,
the Children’s Department should be eliminated.

Problem 6-29A

a.
Decision Division B
Sales $ 600,000
Unit-level manufacturing costs (400,000)
Rent on manufacturing facility (150,000)
Unit-level selling and admin. expenses (28,000)
Division-level fixed selling and admin. expenses (40,000)
Contribution to profit $ (18,000)

Problem 6-29A (continued)

Exploring the Variety of Random
Documents with Different Content

the sale of the produce. When Lord Curzon heard of this he
considered it not fitting, and I understood that he was responsible
for the alteration in the character of the garden, which requires the
constant attention of the water-bearer with his goatskin.
Agra possesses a fine mosque in the Jama Musjid, built by Shah
Jehan in 1644. It is a building of red sandstone and white marble.
The big dome is inlaid in zigzags of white marble and red sandstone
alternately, the whole surface being covered in this way with striking
effect.
It is an interesting drive through the bazaars and over the bridge
of boats across the river Jumna, and through a native village, to the
mausoleum of Itmad-ud-Daulat. In this beautiful building, which is
approached through a massive arched gateway of red sandstone
and across a walled garden, one sees a prototype of the Taj Mahal.
In this case there is a central dome and four minarets, only the
cupola is lower and of a flatter curve, and the minarets are not
detached from the body of the building which is much lower than
the Taj. In the design and execution of its decorative detail, however,
it surpasses the Taj in inventiveness, and variety and richness, both
in pierced and carved work and its pietra dura. The detail of the Taj,
beautiful and finely finished as it is, has in comparison, perhaps,
rather the look of having been done to order, whereas in buildings of
earlier date like this one we seem to see the more spontaneous
invention of the craftsman. The restoring hand of Lord Curzon,
however, has touched this monument also, and a new marble
balustrade around the flat roof has been added under his orders.
There are lovely views from the minarets.
We visited the Taj Mahal again by moonlight. It was the 30th of
December and the moon was full, but it was chilly driving out after
dinner and wraps were necessary. There was a light mist from the
river which hung over the garden, and slightly veiled the lower part
of the building as we approached it down one of the long paths
chequered by the shadows of the trees. The front was in shadow
and looked mysterious in the mist, but the dome seemed made of

pearl rounded in the full moonlight in splendid relief against the dark
deep blue of the night powdered with brilliant stars, while the four
minarets were like helmeted sentinels in shining armour, guarding
the sacred shrine.
The moonlight was bright enough for me to make a sketch by. I
also made two coloured drawings of the Taj by daylight, one of
which—“the Taj Mahal from the rose garden” was afterwards
purchased by H.M. The Queen, and the other, from the gate, is
reproduced here. Agra was full of British and native soldiers, and
more were continually arriving. We passed trains of field artillery
marching through the government gardens, and bell tents covered
the ground like mushrooms. In many places earth banks had been
cut in tiers for seats, and strings of small flags fluttered across many
of the streets, and there were also seats and stands of timber being
erected. Agra could think of nothing but the Amir.
The English and other churches are not admirable examples of
modern architecture, and never seem to look at home in India.
There was a Roman Catholic Church here after the manner of an
eighteenth century one, but any merit it might have had was
obscured by its colour. It had been, so to speak, put into a grey
uniform with buff facings. The English Church was treated in the
same way. This must be military influence. My impression certainly
was that civilians did not count for much at Agra.
In the bazaars we found we were able to make purchases with
rather less accompaniment of drama than at Jaipur. European goods
were much in evidence, of the cheap and nasty sort as a rule, ugly
socks and scarves and cottons, and tin ware. I saw a crowd of
natives clustering round the trumpet mouth of a gramophone—an
instrument which seems to have considerable charms for them.
It was chilly enough in the early mornings and in the evenings at
Agra, and our ground-floor rooms were none of the warmest,
although, of course, the sun was very powerful in the middle of the
day. The Hotel proprietors were looking forward to full houses and
high prices during the Amir’s visit, and enormous sums were

mentioned as probable charges for rooms, but we had no intention
of staying through the festivities.
Our last excursion from Agra was to Sikandra—five miles away to
the North West—where we drove to see the tomb of Akbar. The road
was a dusty one, but through pleasant acacia avenues. We passed
through several mud-built villages, and presently saw white minarets
rising above a belt of trees in the distance. At one part of the road
where the square tower of an English Mission Church was seen
among trees we were reminded for a moment of a bit of Norfolk, but
only for a moment. Soon we reached the great red-stone gateway
which was on a splendid scale, and elaborately inlaid with marble,
exceedingly fine in style, parts had been restored, and all the four
white marble minarets were said to be new and placed there by Lord
Curzon, not I presume without good evidence of the former
existence of such minarets, but such renewals cannot possess any
historic interest and are in doubtful taste. The gate was adorned
with Togra and Arabic inscriptions, which, cut in sunk relief in white
marble, formed a frame work enclosing panels of larger pattern in
marble inlay. Pilasters of red sandstone on the front were in zigzag
courses, alternately white and red, like the work on the dome of the
Jama Musjid at Agra.
From the gateway a long and broad flagged way, intersected by
tanks, led us up to the tomb, across a wide park full of fine trees,
tamarinds and mangoes chiefly. Arrived at the great tomb, the
cupolas of which we had seen in front of us as we walked, we first
entered a sort of hall or atrium with richly decorated roof and walls
in coloured plaster, heightened with gold, and with an Arabic text in
gold running round the frieze. There were beautiful designs of trees
and vines in panels. Parts had been picked out in new gold and
colour, at somebody’s expense, to bring out the pattern, but the new
work looked hard and mechanical though on good lines, and the
new gold was staring; the effect of this partial restoration being of
course patchy. Still, if such restorations are allowable at all, it is
better that they should be frank and make no pretence at being
really a part of the original work. It would, however, in this case

have been far better to have left it alone, as the old gold and colour
still remaining on the walls and vault was rich and deep in tone.
From this hall we entered a small corridor, two native attendants
going before us with lanterns to guide our steps. This passage led
into a vast dark domed chamber, in the midst of which was the plain
marble tomb of the great Akbar. It was impressive in its simplicity,
without any inscription or ornament, the usual narrow parallelogram
with a moulded base. One of the men uttered a deep prolonged note
like the exclamation Ah! but sustained and dwelling on the A. This
was answered by a profound and long-continued echo or
reverberation, dying gradually away, caused I suppose by the height
and shape of the dome. One might imagine it was the voice of the
dead Emperor. After seeing three more tombs, one of which was
richly and delicately carved (a lady’s), we ascended to the terraced
roof, and from there to a second arcaded terrace, from which still a
third was reached up steps of ever increasing height in the treads,
and finally to a top story, emerging upon a beautiful spacious
arcaded court of white marble, but with warm tints in it which made
it very much the tone of ivory. There were delicate, pierced, marble
screens on each side, through which the evening sun sparkled like
gold. In the centre of the court on a raised dais was the second
tomb of Akbar, according to the usual Mohammedan custom of
placing an upper tombstone to indicate the position of the actual
tomb in the vault below. This tomb was most elaborately and
delicately carved in white marble, with beautifully designed floral
patterns and Arabic texts and borders of scroll work, which were like
reproductions in marble relief of the designs in the best type of
Persian carpets. The aged native custodians told us that the famous
koh-i-noor diamond was once here on Akbar’s tomb. It might be
interesting to trace its history to its present position.
The foliated cresting of the parapet of this marble court was also
delicately carved. Altogether the building was one of the finest
things of its type we had yet seen in India. The blend of Hindu
construction with Mogul work in the corbelled supports of the

minarets was noticeable. These corbels were trebled at the angles,
and like most of the building were of red sandstone.
There was a fine view of the country from this highest story of
the tomb, and we could even see the white dome of the Taj Mahal
five or six miles away. The drive from Agra took about an hour, and
the sun had set before we returned.
This being New Year’s day Moonsawmy our bearer smilingly
came up with an offering—a plum cake with a pink sugared top and
“A Happy New Year” on it, as if it had come out of an English
confectioner’s—and this, too, was accompanied by a garland of
yellow and white flowers after the native manner—one for each of
us. He said this was customary, and with his good wishes he
managed to convey a gentle hint that his “jentilmens” usually made
him a little present in return. This rather rubbed a little of the sugar
off, but, of course, we did not forget him. He was not a bad servant
on the whole, though rather too old and cunning a bird in some
ways. He had rather extravagant ideas in ordering carriages, which
we afterwards discovered were not totally unconnected with certain
commissions extracted from the carriage proprietors. No doubt,
however, native bearers regard the European tourist as fair game—it
is not unheard of in Europe—and they, like other classes after their
manner, lose no opportunity of making the most of the chances of
their rather uncertain profession.

W
CHAPTER VIII
GWALIOR
e left Agra for Gwalior on the 2nd of January. Departing from
Agra Road about 11 in the morning we arrived at Gwalior
between 3 and 4 o’clock in the afternoon. We hoped to meet an
Indian friend here, who was a doctor in the suite of the Maharajah,
and whom we had known in London when he was studying for his
degree. He was, however, absent at Calcutta, so we had to shift for
ourselves. There was, however, an excellent guest-house built by the
Maharajah for the use of visitors to Gwalior, not far from the station,
where we found comfortable quarters, very superior to most of the
hotels we had had experience of. The building itself was a charming
pavilion in the Mogul style, with domes, arcades, and pierced stone
work balconies, and elaborately carved doorways, the material of
which it was built being a sort of yellow sandstone. We were allotted
a spacious room opening on to a pleasant terrace and connected
with balconies which extended entirely around the house, and from
here we could see the famous Rock of Gwalior with its fort and
Temples and the old palace of Man Mandir conspicuous at its further
end. There was a large central hall or living room, and in this was a
blazing fire which shed its cheery light and welcome warmth. There
was a good piano and English furniture. There was a sort of
clerestory high in the lofty wall, but no direct light, so that in the
daytime this room was in comparative gloom, by no means
ungrateful after the glare of the sun. The dining-room was fully
lighted and opened on to a portico. In front of the building was a

garden with a rather burnt up piece of lawn encircled by a carriage
drive.
We found a singular silent and reserved company of Anglo-
Indians at dinner—a lady and three gentleman—only one of the
latter manifesting the slightest interest in us. No one appeared at
breakfast the following morning but an English governess and a child
she was in charge of.

TO GWALIOR FORT BY PALANQUIN
We started in a carriage to drive to the fort, stopping on the way
to see the tomb of Mohammed Ghaus, the dome of which is visible
from the guest-house. It is a noble tomb of yellow sandstone, with
fine screen-work. It dates from the early part of Akbar’s reign. We
crossed a river by a bridge and entered a decayed-looking native
town, passing up a straggling street of low houses to the first gate
of the fortress. There we might have hired an elephant to take us up

the steep road to the fort, but the elephant had been already
bespoke by a party of British officers. A palanquin (or jhampan) was
produced, however, in which my wife seated herself and was carried
up the hill by four bearers, four more accompanying them as relays.
As for me I preferred to walk up, and our Moonsawmy went with us.
We passed through several gateways. The Hindu carvings of one
called the Ganesha Gate had been defaced by the Mohammedans.
Soon the towers of the old palace of Man Mandir rose in view near
the summit, each crowned with a circular cupola. It is a striking
building of remarkable character in reddish-yellow sandstone, faced
in parts by turquoise blue and yellow tiles, courses of these tiles
running across the façade. The angle tower and some of the tile-
work at the top had been restored. There was a frieze of geese in
yellow on a turquoise-blue ground, the birds in profile, each showing
an expanded wing and set close together. The design resembled the
carved figures of birds often seen on the Jain temples. The
architecture here being Hindu, was much more massive than the
Mogul work hitherto seen, and showed much variety and invention in
the carved corbels and brackets in the interior. I made a note of a
peacock bracket in which the tail is effectively treated, the bird being
considerably formalised in adapting it to its architectural purpose.
There was another of a fantastic elephant. Elephant heads with their
uplifted trunks, by the way, were carved as brackets to support the
balconies at the Guest House, where also I noted that the detail of
some of the carved work of the door heads at the old palace had
been reproduced. The doorways were rather low and small, and the
whole building had more the character of a castle than a palace. On
the flat table land on the summit of the rock there were several Jain
temples, masses of carving within and without. The Sas Bahu is the
principal Jain temple, and there is also a Hindu temple on the rock—
near the farther end from Man Mandir—the Teli-ka Mandir. This
stands in a graveyard, full of carved fragments and upright stones.
The elephant bearing the party of British officers passed us as we
were exploring the temples. There are some ugly barracks, which
are very much out of keeping with the historic architecture of the
Rock. The old fort has stood many a siege. Caine calls it “the cockpit

of Central India,” and “it has been stormed or starved into
submission a dozen times at least.” It seems to have been originally
fortified in 773 A.D., and at various periods since to have alternately
fallen into the hands of Hindu or Mussulman, as now one and now
the other prevailed. Akbar the Great took it in 1556, and we find the
East India Company in possession in 1780, who took it from Sindhia
and gave it to the Rana of Gohad. Then Sindhia retook it, and so it
has remained with the Sindhias (to which family the present
Maharajah belongs) practically ever since. The Rock has always been
well supplied with water and has many tanks.
We had a commanding prospect of the country, stretching in a
vast plain for miles around. We could see the Maharajah’s palace
amidst its parks and gardens—a white building among the green
foliage, and nearer the foot of the Rock the new town of Gwalior,
called Lashkar. We descended on the farther (northern) side of the
rock by a winding road, and from here we saw some huge carved
figures cut in the face of the sandstone cliffs in bold relief. Most of
these are said to represent Adinath, the first Jain pontiff, but there is
a seated figure of Nemnath, the twenty-second pontiff. Each bear
their symbols, that of the first being a bull and of the second a shell.
There are life-size as well as small figures cut on the lower parts of
the cliff. The effect of these strange carvings is very weird. They
have an impersonal and unrelated look, and give one the impression
of being more ancient than they really are; but they only date from
A.D. 1441 to 1474.
We found our carriage waiting for us at the foot of the hill,
having driven round the Rock from the old town, and we got back to
the Guest House about noon.
In the late afternoon we drove to the Maharajah’s palace, and
presenting our cards, were shown over the rooms by a very polite
English officer. The building is in a sort of late Italian Renaissance
style, all white outside, with a great display of pilasters and
columned porticoes. We entered a vast durbar hall in white and gold,
with modern French-looking furniture with curly legs upholstered in

green. There were many photographs of recent English Governor-
Generals on the walls, as well as indifferent full-length, life-sized
portraits in oil of the late Maharajah. The best of these was said to
have been painted by one Scott—a landscape painter (!). In one of
the smaller rooms there was an English water-colour drawing of
Sussex Downs by A. F. Grace (whom I remember at Heatherly’s in
student days), and several photographic official groups of the usual
type, in which the Maharajah is seated by the Prince of Wales,
surrounded by rows of officials and notabilities, all with “eyes front.”
We wrote our names in the visitors’ book, and then drove through
the grounds, which are very extensive. In one part lions are kept—
apparently in a most insecure way, as they not unfrequently escape
and ravage the country round. In fact, this had quite recently
happened, and natives had been killed by them. A very taciturn
gentleman at the Guest House had been pointed out to us by the
more genial of our fellow-countrymen there as the official who had
been sent by the Maharajah to fetch the wandering lions back, and
he had been over a distance of about three hundred miles before he
succeeded in “rounding them up.” He did not tell us, however, how it
was done, though he had a look as of one who “could a tale
unfold”—not to speak of a lion’s tail! When we saw the place where
these lions were kept we were not surprised that they should have
been able to escape if they had a mind to. We looked down on them
as they were gnawing some bones. They were loose in a sort of
open court, overgrown with grass, and enclosed within four
plastered walls which any cat could have scaled, no palisading or
iron railing at the top. There were five lions and one lioness visible.
The remains of their repast of meat was pounced on by kites and
crows with much clamour.
We next saw the Maharajah’s elephants, and passed down a
long line of them, chained by the fore-legs, down one side of an
open courtyard, all eating what looked like the stalks of Indian corn.
There were about thirty elephants here. One of them was
handsomely painted on the forehead in a similar way to the state
elephant we saw at Jaipur, but none of them had quite such big

tusks. Returning through the gardens, we passed the older palace;
also a white building, but in the Mogul style, with many domes and
minarets, and facing a large tank with marble steps.
Our party at the Guest House was increased at dinner by two
very pleasant American ladies, who, owing to their powers of
conversation, caused the very reserved Anglo-Indians to melt a little
and show some signs of human interest, especially when one of the
ladies related her thrilling experiences during the San Francisco
earthquake.
The next morning we visited the newer city of Gwalior, which we
had seen from the fort. The streets were fairly wide, and some had
varied and picturesque fronts in plaster-work. We were driven to the
gate of a big and rather new Hindu temple, spoiled by the insertion
of crude pieces of coloured glass, of the commonest European
make, in the fan-lights of the doors on each side. A sacred bull of
black marble and a snake fetish were the most interesting things
there.
In the same court was an older temple raised on a flight of
steps. To approach this, one’s shoes had to be taken off, and from
the door only a peep was allowed into the dark interior, which, as far
as I could see was painted all over with figures of deities and
emblems in a barbaric way in coarse and crude colours. The thing to
look at, it appeared, was a portrait of the late Maharajah in his
jewels, on what we should call the high altar, which was suddenly
illuminated by artificial light by one of the native attendants.
Zebu cows were wandering freely about in the court of the
temple, and here for a wonder no fees were taken.

IN THE BAZAAR, GWALIOR
We went into the new market, which had been opened by the
Prince of Wales on his visit the previous year. It was not, however,
very busy, and many of the stalls were empty. It seemed of doubtful
advantage to the natives, who preferred to do business in the
bazaars. There appeared to be a good supply of fresh vegetables,
but very few buyers. The most interesting stalls were those of the
bead sellers. There were beads of every variety of colour and size.

The stalls were about the height of ordinary shop-counters, and on
these platforms, which extended without divisions along the centre
and sides of the market hall, the native traders squatted with their
wares in front of them, women as well as men. Some of them were
engaged in stringing the beads, and one man was plaiting a cord,
the strands of which were fixed to a hook fixed on an upright stick
supported on a stand. He used his toes like fingers to hold out and
divide the strands as he worked. With the assistance of our bearer
we made some purchases, and again later in the bazaar, when, as
the carriage was stopped, I made a sketch of the scene in front of
us, but under difficulties, as we were immediately surrounded on all
sides by an eager concourse of swarthy, interested spectators, who
refused to budge in spite of the rather mild remonstrances or
commands of a native policeman, who, I imagine, used the Hindu
equivalent for “Pass along” or “Move on,” but they didn’t. Under this
“crowd of witnesses” I endeavoured to complete my sketch, and
then we moved on.
Extending our drive on the Morar Road, we passed the camp of
the Maharajah’s soldiers in waiting for the Amir’s coming, as after
the Agra reception was over he was to pay a visit to the palace at
Gwalior for tiger-shooting. We enjoyed a quiet life at Gwalior, and I
was able to make several drawings unhindered by too curious
crowds. The Guest House was one of the quietest places imaginable,
although visitors came and went and even motor-cars were seen.
There was something almost mysterious in the way guests would
appear and disappear—at table one day and vanished the next;
covers would be laid too for guests who never appeared.
Tents which were pitched on the ground outside the Guest
House for other unseen visitors would be clean gone as we looked
out in the morning. Everything seemed so transitory; even a native
boy, when I wanted to make a drawing of him, was nowhere to be
found, and I had to make the best of it with an unwilling and quite
inferior substitute, who had no idea of keeping still, and even ended
the seance by squatting on the ground with his back to one!

It struck me that the natives do not like being drawn or painted,
as a rule, to judge by the various attempts one made to secure
models. The one wanted always disappeared when the time came,
and another, but not a better and without the same characteristics,
offered.
The little palm squirrels were very numerous here, and would
scamper about the terraces and balconies of the Guest House, and
even chase each other into our rooms, or come up for the crumbs
we scattered, sitting up on their haunches to nibble at them, held in
their fore-paws in true squirrel fashion. Equally familiar were the
sparrows which flew in and out, unmolested and fearless, even
perching sometimes on the breakfast table. The crows too would
congregate on the balcony rails if any feeding was going on,
frequently joining us at afternoon tea, at a respectful distance,
though within short range of the scattered crumbs.

CALLERS AT THE GUEST HOUSE, GWALIOR
We witnessed several very lovely sunsets over the Rock of
Gwalior, a type of frequent occurrence being an arrangement of
long, low stratus clouds, brilliantly illuminated on their under edges
as the sun sank below the horizon, the light deepening from orange
into crimson. Another type consisted of golden fleeces of high cirrus
clouds, rippling out over spaces of turquoise.
We paid another visit to the old town of Gwalior and climbed the
hill as far as the third gate, where I made a sketch showing the
towers of the Man Mandir Palace through the arch.
From a terrace extending along the hill near this gate there is a
fine panoramic view, the old town lying below, partly ruined and

deserted, a mass of crumbling walls and complicated roof plans
mingled with trees and gardens.
The first gate at the foot of the hill, where is the guard-house, is
interesting as showing the inlaid enamelled tile-work which
decorates it partially. Deep turquoise is the prevailing colour, and it is
used for the field or background of the designs, and is inlaid in
pieces cut to fit the interstices of the pattern in the yellow
sandstone. In a frieze of geese in close formal procession, the birds
were cut in sunk relief, and the spaces between were filled with
turquoise pieces. The tile decoration on the Man Mandir Palace has
been done in the same way, yellow and green tiles being also used.
We drove through the bazaar of the old town, a queer, half-
ruined, and ragged place, but exceedingly picturesque, the natives
squatting on their stalls, presiding over curious preparations of food
and other wares, with chatting, many-coloured groups crowding
around. Some of the people would look curiously at us, some would
salaam, some were indifferent, others were derisive or sullen.

APPROACH TO THE PALACE OF MAN MANDIR, GWALIOR
There was rather an important-looking mosque with minarets in
the town, but many of the houses were roofless and deserted.
In crossing the bridge over the river we noted the people
washing clothes, and a pretty pattern of colour was formed when
the stuffs were spread out over the sandbanks to dry. Here, in
central India, we were able to see more of the everyday life of the

people, and had more opportunities of quiet observation of country
life than usual. The peasants did not seem to have the curiosity of
the natives in the towns, when one sat down to make a drawing, but
they went on their way, bearing their burdens, or driving ox-carts, or
herds of goats, or buffalo cows, or asses.
It was quite a change to get a grey cloudy effect which occurred
one morning when I had found an interesting subject by the river
side. On the way thither we passed a village burning-place, strewn
with heaps of ashes where the dead had been burned. The river had
shrunk to a small, shallow stream, and at the spot where I sat was
crossed by stepping-stones, over which groups of natives constantly
passed to and fro. Cattle and ox-carts splashed through a shallow
ford at intervals, and higher up natives bathed their brown bodies in
the water. We were on the outskirts of the old town of Gwalior, and
could see above on the rock the dark shapes of the Jain temples
looming up against the sky, while around us were domes of
cenotaphs, fragments of tombs, and broken walls, overshadowed by
groups of fine banyan trees and mangoes. At an old draw-well near
by groups of native women were continually coming and going,
bearing their water-jars on their heads, their draperies forming
delightful schemes of colour.
A dark thin Hindu in a white turban and waist-cloth was
ploughing up his small patch of land near the river for potatoes,
which members of his family working with him were preparing to
sow. There were several sons—youths—two women, and some small
children, all working on the land.
I made a note of the plough, a very primitive implement, having
a single shaft fixed at a right angle to the share, with a cross-handle
at the top. This the ploughman held with one hand—his left—guiding
the plough, while with his right he drove a small pair of zebus under
a yoke, who dragged it along. The share was a wedge-shaped piece
of wood, tipped with iron at the point and along its edge.
Moonsawmy talked to the man while I made my notes, and he
told me afterwards that the ploughman never managed to earn as

much as 200 rupees in the year, though he and his family—I
suppose about ten or a dozen all told—were constantly at work. His
patch of land being near the river, one would have thought
favourable for raising crops; but it appeared the river not
infrequently was completely dry, and they were hard put to it for
water for the soil. The income of the whole family worked out at
about thirteen pounds a year at the most, which, taking into
consideration that it had to be the support of about a dozen people,
seemed narrow enough, and one could easily understand that the
slightest failure of the crops would mean something like famine.
This state of things bears out the estimates of the average
income of the Indian ryot, calculated by the late William Digby,
C.I.E., after long residence and experience in India, the results of
whose study of the question are given in detail, from undisputed
authorities, in his striking work, “Prosperous British India,” in which
is accumulated an appalling mass of evidence, all pointing to the
conclusion that for famine should very largely be read poverty, which
is also the root cause of bubonic plague. The railways, of course,
might convey corn to the starving districts, but where the people
have no money to pay for it they must starve all the same,
Government relief-works being the only alternative; but this sort of
relief must often be too late for poor creatures reduced by hunger
and too weak to work.
The ordinary unprejudiced observer is naturally inclined to ask,
Why this desperate poverty in an industrious population, supposed
to be under beneficent British rule and administration? The answer
must be sought in the fact that thirty millions and upwards are
annually extracted from the country without any equivalent return,
and this must necessarily mean a heavy burden of taxation on the
chief sources of wealth, land and labour.
One of the greatest principles of our Constitution of which our
public men are never tired of boasting is, “No taxation without
representation,” or, “Taxation and representation must go hand in
hand.” This principle is, however, entirely ignored in India, where

British rule is as autocratic as that of Russia. Is it surprising in these
circumstances that there should be “unrest”?
The educated Hindu or Mohammedan—the many who come to
England and are trained in English Universities, or read for the Bar,
or study for their degrees in medicine, feel that there is no part or
lot for them in the administration of the affairs of their own country
except in a very subordinate way. I understand that the highest
Government post a native can attain to is the office of assistant-
commissioner.
Time was when, after the great upheaval of the Mutiny—which
was really an attempt to regain possession of the reins of
government by the native princes of Oude, the principle of native
representation under British administration was advocated by
leading English politicians. Nothing, however, came of it, and the
policy of the India Office has remained unchanged through all the
changes of party government, there being no difference in this
matter between Liberals and Conservatives. A Liberal like Mr John
Morley, when in office as Indian Secretary, promptly orders the
arrest and deportation without trial of Indian agitators under an old
law of the East India Company which has never been ratified by the
English Parliament.
Mr Laipat Rai, however, appears to be a self-sacrificing and
devoted advocate of the cause of his people, and as editor certainly
cannot have written so strongly against the English Government as
Mr H. M. Hyndman, who has for years past denounced the conduct
of the India Office, while challenging attention to and redress of the
system under which the people of India are impoverished.
The attenuated ploughman who has been the occasion of these
remarks was a typical figure. Looking on such figures, able only to
secure a bare subsistence, so common throughout India, one cannot
but feel that all the magnificence and luxury of the Maharajahs, as
well as the heavy burden of the cost of the British Government, is
maintained by the sweat of the brows and the ceaseless toil of such
as these.

A
CHAPTER IX
DELHI
fter a stay of about a week at the Guest House at Gwalior we
took the road again, or rather the railroad, Delhi being the
next place on our itinerary. We thought, however, to break the
journey for a few hours at Agra, and get a view of the entry of the
Amir, which was fixed for the 9th of January.
It was a lowering, cloudy morning when we left our quarters and
made for the railway station, where we had a long wait in the
darkness. An enormous throng of natives filled the platform,
squatting on the ground or standing about in groups, talking or
sleeping under covers which hid them from head to foot. Most were
closely wrapped up about the shoulders, cloths being wound over
the turban, even so that they had generally a top-heavy look with
bare legs. Their wraps were only of cotton though, as a rule, and did
not seem adequate against the chill of the morning. One little
swarthy man was busy writing, making entries on sheets of paper or
perhaps bills of lading. He squatted on the platform against one of
the piers of the arcade, writing by the aid of a lantern’s light. I
noticed only one European besides ourselves in the throng, and he
appeared to be an English official and wore a pith helmet.
At last up came the train from Jhansi, and we got in, a
slumbering English officer occupying one of the berths. The sky,
which was the only gloomy and threatening one we had experienced

in India, and certainly looked leaden and hopeless enough, soon
turned to rain, and under such an aspect the country looked
desolate in the extreme. The tawny earth and fuzzy, dry grass,
sparse trees of prickly acacia and scrub bushes, the broken hillocks
and mounds of clay, looked more fruitless and forlorn under the
steady, soaking rain; groups of poor country folk in their thin cotton
clothing huddled together, waiting at the stations we passed, or
could be seen splashing through the muddy pools to catch the train.
Nearing Agra, we saw heavy artillery trains with field guns
trailing along the wet roads. Troops had been pouring into Agra for
some time, and while at Gwalior a native regiment of cavalry
(lancers) rode by the Guest House, preceded by their baggage on
mules and camels.
At Agra Road Station the rain was pouring in torrents. There is
an immense, long, exposed platform, along which we made our way
to cover under the station shed, which was already crammed with
people, mostly English and American visitors, army officers, and
officials.
The weather being quite hopeless, we gave up the idea of
seeing anything of the procession, which of course was a military
one, and then finding there was a dining-car in waiting, we had a
scamper through the rain again down the platform to reach it.

A DASH FOR THE DINING-CAR AT AGRA ROAD
After tiffin we were just in time to catch a train on to Delhi—in
fact it had actually started, but the courteous station-master sent an
official to stop it for us, and to see us safely in with our baggage. It
was now nearly noon, but our train, a slow passenger one, was not
due at Delhi until 5.30. The rain continued steadily, and damp
groups of natives were gathered at the different stopping stations in
various stages of discomfort. They did not, however, appear to mind
the wet so much as one would have expected, but swathed

themselves in all sorts of curious wraps up to the eyes, leaving the
legs and feet bare, and some even squatted on the wet ground.
The country was again a plain for the most part, and extensively
cultivated under irrigation, several irrigation canals being crossed by
the railway. Green crops of young corn seemed almost hidden by
charlock, the yellow fields having almost the effect of our buttercup
meadows in May. Flocks of black and white cranes were seen, as
well as a large, blue, grey-plumaged kind, which are usually seen in
pairs in the green corn. Three superior-caste Hindus got into our
compartment and occupied the cross-bench at one end. One had a
bad cough, but they kept their windows open and did not seem to
mind draughts. Coughs and throat troubles seemed, indeed, too
common in India, and we often heard distressing coughs in the
hotels at night.
The sky towards evening began to clear in the west, the whole
solid field of rain cloud gradually lifting like a curtain, and the sun
shining out while the rain continued, a brilliant rainbow appeared as
if painted on the black wall of cloud to the eastward.
The line passes through a part of old Delhi, a vast region of
broken tombs and ruined walls lying outside the walls of the present
city, and afar off we could see the domes and minarets of the Great
Jama Musjid Mosque.
We got in in good time, and collecting our heavy baggage sent
on from Gwalior, drove to Maiden’s Hotel, through streets dark with
rain and standing in pools of water, a stormy orange sunset casting a
warm glow over everything. The hotel was on the usual Indian plan,
with a centre and two arcaded wings enclosing a court, along which
a series of ground-floor, bungalow-like bed- and bath-rooms
extended, chilly enough at this time of year in the mornings and
evenings, especially in wet weather. The hotel itself was under
English management, and there were large open fires in the dining-
room and salon, which looked comfortable, and the cookery was
superior to most of the others we had experienced. Letters from
England awaited us, and added to our satisfaction. No doubt the

mails are delivered with wonderful regularity, and so long as the
traveller can arrange his tour in order that his letters shall meet him
at certain places, and does not leave before the mail arrives, no
complications occur. It is only when letters follow one about instead
of preceding one that delay and difficulties occur.
The next morning (January 10) was grey, chill, and damp, when
we started after breakfast to see Delhi. The hotels and the British
residential quarter lie quite outside the native town, as is usually the
case, amid spacious, park-like grounds, here pleasantly undulating,
and varied with gardens and fine groups of trees. The town is
walled, and has a broad dry ditch as a farther defence. We drove
through the famous Kashmir Gate, renowned for the British assault
at the time of the Mutiny, which remains in the battered condition in
which it was left after the siege, with great shot-holes in its masonry,
as well as in the walls each side. A tablet records the circumstances
of the siege, and the names of the officers and soldiers who
distinguished themselves at that terrific time.
The gate has two ogee-pointed arches, enclosed in rectangular
mouldings in the usual Mogul fashion. As one enters the city,
inscribed tablets recording incidents of the siege are numerous, and
the British authorities have certainly been most careful to preserve
the memory of their side of the fight along with the names of their
military heroes, and every noteworthy spot in the struggle is
commemorated in this way. In addition to such incidental
monuments there is the Mutiny Memorial, an important red-
sandstone erection (110 feet high) outside the gates, upon a rising
ground, and so placed that a complete view can be obtained from its
summit of the lines of the siege.
At the fort, which was formerly the Imperial Palace of the Moguls
(built in A.D. 1628–58 by Shah Jehan), it is distressing to see the
ruthless destruction of superb buildings for which the British have
been responsible, and the barbarous way in which hideous barrack
structures have been substituted. The fort, or palace, is entered
through a noble, deep-red sandstone gate. The Lahore, or, as it is

now called, the Victoria Gate, and the fine court, is marred by these
ugly modern military barracks for which so much beauty was
sacrificed. We were shown two splendid halls, the Diwan-i-am, or
public hall of audience, and the Diwan-i-khas, or private hall of
audience. This is of white marble with beautiful inlays of precious
stones, with a richly decorated ceiling in colour and gold. A marble
pedestal is pointed out as the place whereon the wonderful peacock
throne stood. This must indeed have been gorgeous, the seat
between two peacocks with spread tails, and these encrusted with
sapphires, diamonds, rubies, and emeralds, representing the natural
colours of the plumage, a true emblem of oriental magnificence.
Over the arches of the arcade in this hall is a Persian inscription in
raised and gilt characters, which reads, “If there is a paradise on
earth, it is this, it is this, it is this.” This costly “paradise,” again, was
built by the builder of the Taj Mahal, Shah Jehan, who seems to
have outshone all the Mogul emperors by the splendour of his
buildings. Of course there are no diamonds, or rubies, or emeralds
left, and even the small stones used in the decorative floral inlays
have in many cases been picked out. It is said that Lord Curzon
employed Florentine workmen to replace some of this work at his
own expense.
The decoration of the walls and ceilings in the zenana rooms,
consisting of painted and gilded arabesques, was very lovely, and
the marble Akab Baths exquisite. The river (Jumna) formerly flowed
up to the walls of the palace on that side, and from a beautiful
minaret we could see the river beyond a belt of green foliage, and
get a fine perspective view up and down of the palace wall and
buildings.
Near by, on the other side of the court, is the Rung Mahal, which
is distinguished by particularly fine pierced screen-work. The vaulted
rooms connected with this building were till recently used as officers’
mess-rooms, when all their beautiful decoration were obliterated
with whitewash.

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