Answer:
Triad Children's Center (TCC), Relevant Cost Analysis:
Computation of Surplus or Deficit in Funding Program:
Funds from City Chamber of Commerce =$50,000
Funds from Private University Endowment = $35,000
Total Expected Funds = $85,000
Less Incremental Costs:
Program Director Salary = $39,000
Part-time Assistants' Salaries = $28,000
Variable cost per child = $36,000 ($900 x 40)
Total = $103,000
Deficit = $18,000
Explanation:
Relevant Cost Analysis is a managerial accounting term. It tries to remove non-avoidable costs from decision-making data, leaving only data pertaining to costs that could be avoided.
It is also known as incremental analysis or differentiation analysis or marginal analysis. The idea is to eliminate sunk costs which had already been incurred without relevance to the decision at hand.
In the present case, all the given costs are relevant to the decision, since the costs will be incurred as a result of creating this new program.
Relevant cost analysis is used widely in business decisions. For example, if a business wants to make an item or buy it from outside suppliers, accept special offers, and open or close a unit.
