Nicklin Corporation is considering two alternatives, code-named M and N. Costs a

Question

Nicklin Corporation is considering two alternatives, code-named M and N. Costs associated with the alternatives are listed below: Alternative M $ 69,000 Alternative N Supplies costs Power costs 61,000 $42,000 42,000 Inspection costs 22,000 33,500 Assembly costs 35,000 24,000 Required: a. Which costs are relevant and which are not relevant in the choice between these two alternatives? Supplies costs Power costs Inspection costs Assembly costs b. What is the differential cost between Alternative M and Alternative N? (Negative amount should be indicated by a minus sign.) Differential cost

Explanation / Answer

a.

Costs that are different for the two alternative are relevant and the costs that are same for both the alternatives are irrelevant.

b.

Calculate the differential cost as follows:

Differential cost between Alternative M and N is $7,500.

Supplies costs Relevant Power costs Irrelevant Inspection costs Relevant Assembly costs Relevant

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