Costs associated with two alternatives, code-named Q and R, being considered by

Question

Costs associated with two alternatives, code-named Q and R, being considered by Albiston Corporation are listed below: Alternative Q $85,000 $38,000 $35,000 $46,000 Alternative Supplies costs Power costs Inspection costs Assembly costs $85,000 $37,200 $37,200 $46,000 Required: a. Which costs are relevant and which are not relevant in the choice between these two alternatives? b. What is the differential cost between the two alternatives? a. Supplies costs Power costs Inspection costs Assembly costs

Explanation / Answer

a. The costs that differ between the two alternatives are the relevant costs. Hence, power costs and inspection costs are relevant while supplies costs and assembly costs are not relevant.

b. Differential cost:

a. Supplies costs Not relevant Power costs Relevant Inspection costs Relevant Assembly costs Not relevant b. Differential cost $             1,400

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