In a marginal/differential analysis, I have two decision options available for t

Question

In a marginal/differential analysis, I have two decision options available for the upcoming year:

1. Keep open my existing arcade business only and not expand, or 2. expand business by opening a second location across town

If opened, the second locaiton's staff wages would be the same percentage of sales as the original location. The opening of the second location is estimated to result in a 15% increase in sales for the original location.

Question:

Are the staff wages considered a Relevant expense?

Since the revenue will increase 15%, I am assuming that the amount of wages paid will increase too, but since it is a % of sales, I'm not sure if that is the type of change that counts as a "relevant" cost?

Explanation / Answer

Yes, the staff wages are considered a relevant expense.

A relevant cost is a cost that differs between the two alternatives and which changes in the future due to the decision. Since the staff wages would change in case the decision to expand business by opening a second location is made, the staff wages is a relevant expense.

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