Question

Costs associated with two alternatives, code-named Q and R, being considered by Albiston Corporation are listed below: Alternative Q Alternative R Supplies costs $ 72,000 $ 72,000 Power costs $ 33,300 $ 32,200 Inspection costs $ 26,000 $ 32,200 Assembly costs $ 38,000 $ 38,000 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?

Answer 1

a.

Supplies costs	Not relevant since the costs do not differ between alternatives
Power costs	Relevant, since costs differ between alternatives
Inspection costs	Relevant, since costs differ between alternatives
Assembly costs	Not relevant since the costs do not differ between alternatives

b.

	Alternative Q	Alternative R	Differential
Supplies costs	$   72,000.00	$    72,000.00	$           -
Power costs	33,300.00	32,200.00	(1,100.00)
Inspection costs	26,000.00	32,200.00	6,200.00
Assembly costs	38,000.00	38,000.00	-
Total	$ 169,300.00	$ 174,400.00	$ 5,100.00