Zurasky Corporation is considering two alternatives: A and B. Costs associated with the alternatives are listed below:
-What is the differential cost of Alternative B over Alternative A,including all of the relevant costs?
A)$44,000
B)$149,000
C)$105,000
D)$127,000

Question

Zurasky Corporation is considering two alternatives: A and B. Costs associated with the alternatives are listed below: 
-What is the differential cost of Alternative B over Alternative A,including all of the relevant costs?
A)$44,000 
B)$149,000 
C)$105,000 
D)$127,000

Quizplus · Accepted Answer

To find the differential cost of Alternative B over Alternative A, we need to subtract the total cost of Alternative A from the total cost of Alternative B.

Total cost of Alternative A:
Direct materials and labor = $300,000
Overhead = $180,000
Total cost of Alternative A = $300,000 + $180,000 = $480,000

Total cost of Alternative B:
Direct materials and labor = $360,000
Overhead = $264,000
Marketing costs = $60,000
Total cost of Alternative B = $360,000 + $264,000 + $60,000 = $684,000

Differential cost of Alternative B over Alternative A = $684,000 - $480,000 = $204,000

However, the question asks for the "relevant costs" only. Based on the information given, the marketing cost of $60,000 is only relevant to Alternative B and should be included in the differential cost calculation. Therefore:

Differential cost of Alternative B over Alternative A, including all relevant costs = $204,000 - $60,000 = $144,000

Since Alternative A has a total cost of $480,000 and Alternative B has a total cost of $684,000, and the differential cost of Alternative B over Alternative A is $144,000, we can conclude that Alternative A is the best choice in terms of cost.

Zurasky Corporation Is Considering Two Alternatives: a and B