Question

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

	Alternative A				Alternative B
Material costs	$	35,000			$	60,000
Processing costs		40,000				60,000
Building costs		13,100				30,000
Equipment rental		20,100				20,100

If only the differential costs of the two decisions are considered, the total cost of Alternative B is

$139,150.

$61,900.

$108,200.

$170,100.

Answer 1

Costs Alternative A:

Material costs $ 35,000

Processing costs 40,000

Building costs 13,100

Total= $88100

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Costs Alternative B:

Material costs $ 60,000

Processing costs $60,00

Building costs $30,000

Total= $150,000

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Total differential cost = 150000 - 88100 = $61900

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Explanation:

The cost which is same in both the alternatives, i.e Equipment rental, will not be considered in calculating the cost.