Question

Norris, Inc. is considering two options, P & Q. Costs associated with the options are listed below: Option P Option Q Supplies costs $ 67,000 $ 60,000 Assembly costs $ 41,000 $ 41,000 Power costs $ 21,000 $ 32,000 Inspection costs $ 34,000 $ 23,000 Required: a. Which costs are relevant and which are not relevant in the choice between these two options? b. What is the differential cost between the two options?

Answer 1

a
Supplies costs	Relevant	Cost differs between alternatives
Assembly costs	Not Relevant	Cost does not differ between alternatives
Power costs	Relevant	Cost differs between alternatives
Inspection costs	Relevant	Cost differs between alternatives

b
	Option P	Option Q
Supplies costs	67000	60000
Assembly costs	41000	41000
Power costs	21000	32000
Inspection costs	34000	23000
Total cost	163000	156000
Differential cost	7000	=163000-156000