Question

You wish to take an Excel course. You may enroll at one within your school or you may take a community class at the local library. You've gathered the following information to aid in your decision-making process.

Costs/Benefits	College Course	Professional Development Course	Relevant or Irrelevant
Cost	$3,000	$1,000
Distance to course	0.25 miles (walking distance)	15 miles (driving distance); cost to drive is $.50/miles plus $3 parking
Timing of course	Weekday	Weekend
Number of meetings	8	8
Qualitative considerations	Transferrable towards higher degree	Less rigorous, ungraded

Required:

a. Indicate in the table above 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?

SHOW ALL WORK AND CALCULATIONS!

Answer 1

(a) Relevent cost is a cost which is a incremental and avoidable cost of implementing a business decision.

Costs/Benefits	College Course	Professional Development Course	Relevant or Irrelevant
Cost	$3,000	$1,000	Relevant cost
Distance to course	0.25 miles (walking distance)	15 miles (driving distance); cost to drive is $.50/miles plus $3 parking	Relevant cost
Timing of course	Weekday	Weekend	Irrelevent (Not a cost)
Number of meetings	8	8	Irrelevent (Not a cost)
Qualitative considerations	Transferrable towards higher degree	Less rigorous, ungraded	Irrelevent (Not a cost)

(b) Differential cost is the difference between the cost of two alternative decisions, or of a change in output levels.

Costs/Benefits	College Course	Professional Development Course	Differential cost
Cost	$3,000	$1,000	$2,000 ($3,000-$1,000) if I choose college course
Distance to course	0.25 miles (walking distance)	15 miles (driving distance); cost to drive is $.50/miles plus $3 parking	(15 miles *$0.5 per mile*8 meetings*2 trips per day) + ($3 per perking*8 meetings) = $120 + $24= $144 is savings if I choose college course

Total differential cost = $2,000 - $144 = $1,856 is excess cost is I choose college course.

Others to be noted:-

If I choose college course meetings is on weekday which is a obstacle for doing a full time job. But as per qualitative considerations college course is Transferrable towards higher degree which is better then Professional Development Course.