Question

Ouzts Corporation is considering Alternative A and Alternative B. Costs associated with the alternatives are listed below: Alternative A Alternative B Materials costs $ 42,000 $ 56,200 Processing costs $ 38,600 $ 38,600 Equipment rental $ 13,400 $ 13,400 Occupancy costs $ 15,100 $ 22,600 What is the financial advantage (disadvantage) of Alternative B over Alternative A?

Answer 1

Answer:

The alternative B has financial advantage of $21,700 over Alternative A

Explanation:

By comparing the two alternatives, we get to know the difference which is shown below:

Material cost = Alternative B - Alternative A

                     = $56,200 - $42,000

                     = $14,200

Occupancy cost = Alternative B - Alternative A

                           = $22,600 - $15,100

                           = $7,500

Total cost = Difference of material cost + difference of occupancy cost  

                 = $14,200 + $7,500

                = $21,700

The other cost like processing and equipment rental is same in both the alternatives. So, these costs are not considered.  

Since the amount has come in positive which mean the alternative B has a financial advantage of $21,700 over Alternative A.