Question

Waterway, Inc. is considering the following alternatives:

	Alternative 1	Alternative 2
Revenues	$119300	$119300
Variable costs	60400	65800
Fixed costs	35400	38100

Which of the following are relevant in choosing between the alternatives?

a) variable costs

b) revenues

c) fixed costs

d)variable costs and fixed costs

Answer 1

Solution:

Answer is: Option d) variable costs and fixed costs

Explanation: Under the given question, the variable costs and fixed costs are relevant in choosing between the alternatives. The primary condition for being relevant is that the amount of revenues and costs should be different in each alternative course of actions. The differential analysis of revenues and costs between the alternatives is required to be done to choose between the alternatives.

In the given question, variable costs and fixed costs are different under both the alternatives, hence they are relevant in choosing between the alternatives, while the revenue is same under both the alternatives, hence the revenue is not relevant in choosing between the alternatives.