Question

San Juan, Inc. is considering two alternatives: A and B. The costs associated with the alternatives are listed below:

Alternative A Alternative BMaterial costs$35,500 $61,000 Processing costs 40,500 61,000 Building costs 13,200 31,000 Equipment rental 20,200 20,200
If only the differential costs of the two decisions are considered, the total differential costs of Alternative B is
A. $13,200
B. $30,500
C. $41,800
D. $80,200

Answer 1

The total differential cost of Alternative B, when compared to Alternative A, is $63,800, which is calculated by summing the differences in material, processing, and building costs between the two alternatives. There is no differential cost for equipment rental.

Step-by-step explanation:

The question involves calculating the differential costs between two alternatives, A and B. Differential cost is the difference in cost between two alternatives when considering only those costs that vary between the alternatives. To calculate the total differential costs of Alternative B in comparison to Alternative A, we need to compare the costs item by item and sum the differences.

• Material costs difference: $61,000 - $35,500 = $25,500
• Processing costs difference: $61,000 - $40,500 = $20,500
• Building costs difference: $31,000 - $13,200 = $17,800
• Equipment rental difference: $20,200 - $20,200 = $0 (no difference)

Adding these differences together: $25,500 + 20,500 + 17,800 + 0 = $63,800. Thus, the total differential cost of Alternative B is $63,800, which is not one of the provided options. Therefore, it seems there might be a mistake in the question or the options provided.