Nesmith Corporation is considering two alternatives: A and B. Costs associated with the...
Question:
Nesmith Corporation is considering two alternatives: A and B. Costs associated with the alternatives are listed below:
| Alternative A | Alternative B | |
| Materials costs | $37,000 | $49,000 |
| Processing costs | $43,000 | $43,000 |
| Equipment rental | $10,400 | $28,200 |
| Occupancy costs | $19,200 | $29,400 |
What is the differential cost of Alternative B over Alternative A, including all of the relevant costs?
a. $149,600
b. $109,600
c. $136,200
d. $40,000
Relevant Costs
Relevant costs are costs that differ among the various alternatives presented. Relevant costing is a key concept in management accounting and is used most especially in short-term, non-routine decisions. Such decisions include accepting or rejecting a special order, making or buy a product, and dropping or keeping a segment. Relevant costs are also known as avoidable costs.
Answer and Explanation: 1
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View this answerDifferential costs are calculated by subtracting the costs for each alternative for every type of cost. The difference between each cost is the...
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Differential Cost in Managerial Decision Making
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Chapter 9 / Lesson 3
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Differential cost compares two procedures or plans to identify their difference in cost. See how differential cost occurs and is used to guide managerial decisions through an example.
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