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 $ 17,000 $ 19,000 Variable costs 3,000 7,000 Fixed costs 3,000 3,000 Profit $ 11,000 $ 9,000 What are the incremental (differential) costs of the Western Tour

Answer 1

Answer:

$4,000

Explanation:

Scholastic's                         Eastern Tour                 Western Tour

Projected revenue                $17,000                         $19,000

Variable costs                       ($3,000)                         ($7,000)

Fixed costs                            ($3,000)                         ($3,000)    

Profit                                       $11,000                           $9,000

The incremental costs of the Western Tour is:

incremental costs = costs associated to western tour - costs associated to the alternative eastern tour = ($7,000 + $3,000) - ($3,000 + $3,000) = $10,000 - $6,000 = $4,000

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.