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13 May, 17:28

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 $ 38,000 $ 66,000 Processing costs 43,000 66,000 Building costs 13,700 36,000 Equipment rental 20,700 20,700 If only the differential costs of the two decisions are considered, the total differential costs of Alternative B is

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  1. 13 May, 20:10
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    Total differential cost = - $73300

    Explanation:

    Equipment rental is equal in both alternatives, so it is not relevant for making a decision.

    Costs Alternative A:

    Material costs $ 38,000

    Processing costs 43,000

    Building costs 13,700

    Total = $94700

    Costs Alternative B:

    Material costs $ 66,000

    Processing costs $66,00

    Building costs $36,000

    Total = $168,000

    Total differential cost = 168000-94700=$73300

    Alternative B costs $73300 more than Alternative A. Based only on this information, alternative A is better than alternative B.
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