Question

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

Alternative M Alternative N
Supplies costs $ 82,000 $ 69,000
Assembly costs $ 50,000 $ 50,000
Power costs $ 30,000 $ 45,500
Inspection costs $ 43,000 $ 32,000


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?

Answer 1

a. Supplies cost: $82,000 for Alternative M and $69,000 for Alternative N.

Power cost: $30,000 for Alternative M and $45,500 for Alternative N.

Inspection Cost: $43,000 for Alternative M and $32,000 for Alternative N.

b. differential cost = $1,500