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Answer : With explanation
Basis :
Relevant cost is the cost which is relevant for decision making and it is usually the cost which is different for given alternatives. The cost which is same in all alternatives is not relevant for decision making or in other words is irrelevant.
Explanation | |||||
a. | Supplies costs | Not relevant | As cost incurred on supplies is same under both the alternatives so it is not relevant for making the decision as which alternative is to be chosen | ||
Power costs | Relevant | As cost incurred on Power costs is same under both the alternatives so it is not relevant for making the decision as which alternative is to be chosen | |||
Inspection cost | Relevant | As cost incurred on Inspection cost is same under both the alternatives so it is not relevant for making the decision as which alternative is to be chosen | |||
Assembly Costs | Not relevant | As cost incurred on Assembly Costs is same under both the alternatives so it is not relevant for making the decision as which alternative is to be chosen | |||
b. | Differential Cost | $ 9,700 | Difference between the total relevant cost of both the alternatives calculated as below | ||
Calculation of Differential Costs | |||||
Cost of | Alternative Q | Alternative R | Differential cost = Q-R | ||
Power costs | $ 30,500 | $ 29,600 | $ 900 | ||
Inspection cost | $ 19,000 | $ 29,600 | $ (10,600) | ||
Total Relevant cost | $ 49,500 | $ 59,200 | $ (9,700) |
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