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3 July, 17:52

Nicklin Corporation is considering two alternatives, code-named M and N. Costs associated with the alternatives are listed below:

Alternative M Alternative N

Supplies costs $ 77,000 $ 68,000

Power costs $ 49,000 $ 49,000

Inspection costs $ 29,000 $ 44,000

Assembly costs $ 42,000 $ 31,000

Required:

a. Which costs are relevant and which are not relevant in the choice between these two alternatives?

Supplies costs

Power costs

Inspection costs

Assembly costs

b. What is the differential cost between Alternative M and Alternative N? (Negative amount should be indicated by a minus sign.) fferential cost

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Answers (1)
  1. 3 July, 18:14
    0
    Answer and Explanation:

    a. The cost that are relevant or irrelevant is shown below:-

    Relevant costs are those costs which influence the company's decision-making process and these costs vary between alternatives. However, irrelevant costs are the same for each alternative and thus do not impact decision-making processes.

    Supplies costs = Relevant

    Supplies cost is relevant as amount are vary between alternatives

    Power cost = Irrelevant

    Power cost is relevant as amount is not vary between the alternatives

    Inspection cost = Relevant

    Inspection cost is relevant as amount are vary between alternatives

    Assembly cost = Relevant

    Assembly cost is Relevant as amount are vary between alternatives

    b. The computation of differential cost between Alternative M and Alternative N is shown below:-

    Alternative M Alternative N Differential cost

    Supplies costs $77,000 $68,000 $9,000

    Power costs $49,000 $49,000 $0

    Inspection costs $29,000 $44,000 - $15,000

    Assembly costs $42,000 $31,000 $11,000

    Differential cost $197,000 $192,000 $5,000
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