Question

Scholastic Tours is trying to decide which one of two tours it will introduce. The costs and revenues associated with each alternative are listed below: Eastern Tour - Western Tour Projected revenue - $ 14,000 - $ 18,000 Variable costs - 2,000 - 10,000 Fixed costs - 6,000 - 6,000 Profit - $ 6,000 - $ 2,000 What are the incremental (differential) costs of the Western Tour?

Answer 1

Answer:

$8,000

Explanation:

Scholastic's                         Eastern Tour                 Western Tour

Projected revenue                $14,000                         $18,000

Variable costs                       ($2,000)                        ($10,000)

Fixed costs                            ($6,000)                        ($6,000)    

Profit                                       $6,000                          $2,000

The incremental costs of the Western Tour is:

incremental costs = costs associated to western tour - costs associated to the alternative eastern tour = ($10,000 + $6,000) - ($2,000 + $6,000) = $16,000 - $8,000 = $8,000

Incremental costs are the costs that a company incurs in by taking a particular action or making a particular decision, always compared to not taking that particular action or making that decision.