Question

Costs associated with two alternatives, code-named Q and R, being considered by Albiston Corporation are listed below: . Supplies costs Power costs Inspection costs Assembly costs Alternative Q $66,000 $30, 500 $19,000 $34,000 Alternative R $66,000 $29,602 $29,60€ $34,000 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? Not relevant Supplies costs Power costs Inspection costs Assembly costs Differential cost Relevant Relevant Not relevant $ 9,700 < Prev 1 of 5 !!! Next > 8:55 AM

please explain the right answer to me. thanks so much

Answer 1

Answer : With explanation

Basis :

Relevant cost is the cost which is relevant for decision making and it is usually the cost which is different for given alternatives. The cost which is same in all alternatives is not relevant for decision making or in other words is irrelevant.

			Explanation
a.	Supplies costs	Not relevant	As cost incurred on supplies is same under both the alternatives so it is not relevant for making the decision as which alternative is to be chosen
	Power costs	Relevant	As cost incurred on Power costs is same under both the alternatives so it is not relevant for making the decision as which alternative is to be chosen
	Inspection cost	Relevant	As cost incurred on Inspection cost is same under both the alternatives so it is not relevant for making the decision as which alternative is to be chosen
	Assembly Costs	Not relevant	As cost incurred on Assembly Costs is same under both the alternatives so it is not relevant for making the decision as which alternative is to be chosen
b.	Differential Cost	$                               9,700	Difference between the total relevant cost of both the alternatives calculated as below
Calculation of Differential Costs
	Cost of	Alternative Q	Alternative R	Differential cost = Q-R
	Power costs	$                             30,500	$      29,600	$                                             900
	Inspection cost	$                             19,000	$      29,600	$                                     (10,600)
	Total Relevant cost	$                             49,500	$      59,200	$                                       (9,700)

Thanks a lot

Kindly hit thumbs up if satisfied

For any query mention in comment section please