Question

Scholastic Tours is trying to decide which one of two tours it will introduce. The costs and revenues associated with each alternative are listed below: Eastern Tour - Western Tour Projected revenue - $ 14,000 - $ 18,000 Variable costs - 2,000 - 10,000 Fixed costs - 6,000 - 6,000 Profit - $ 6,000 - $ 2,000 What are the incremental (differential) costs of the Western Tour?

Answer 1

$8,000

Step-by-step explanation:

Scholastic's Eastern Tour Western Tour

Projected revenue $14,000 $18,000

Variable costs ($2,000) ($10,000)

Fixed costs ($6,000) ($6,000)

Profit $6,000 $2,000

The incremental costs of the Western Tour is:

incremental costs = costs associated to western tour - costs associated to the alternative eastern tour = ($10,000 + $6,000) - ($2,000 + $6,000) = $16,000 - $8,000 = $8,000

Incremental costs are the costs that a company incurs in by taking a particular action or making a particular decision, always compared to not taking that particular action or making that decision.