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Saalfrank Corporation is considering two alternatives that are code-named M and N. Costs associated with the alternatives are listed below: Supplies costs Assembly costs Power
Saalfrank Corporation is considering two alternatives that are code-named M and N. Costs associated with the alternatives are listed below: Supplies costs Assembly costs Power costs Inspection costs Alternative M $56,000 $31,000 $11,000 $24,000 Alternative N $50,000 $31,000 $17,000 $13,000 29 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?
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a To determine which costs are relevant and which are not relevant in the choice between alternatives M and N we need to consider the costs that are incremental or different between the two alternatives Relevant costs are those that differ between the alternatives and will affect the decisionmaking process Nonrelevant costs are those that are common to both alternatives and do not impact the decision Looking at the costs provided Supplies costs Both alternatives have different supply costs Relevant Assembly costs Both alternatives have the same assembly costs Nonrelevant Power costs Both alternatives have different power costs Relevant Inspection costs Both alternatives have different inspection costs Relevant Based on this analysis the relevant costs for the choice between alternatives M and N are supplies costs power costs and inspection costs The assembly costs are nonrelevant since they are the same for both alternatives b The differential cost between the two alternatives is the difference in total costs between the two options To calculate the differential cost we subtract the total cost of one alternative ...
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Introduction To Health Care Management
Authors: Sharon B. Buchbinder, Nancy H. Shanks
3rd Edition
128408101X, 9781284081015
