Relevant

Use the following to answer questions 71-72:

Ouzts Corporation is considering two alternatives: A and B. Costs associated with the alternatives are listed below:

Alternative A
Alternative B

Materials costs
$40,000
$56,000

Processing costs
$37,000
$37,000

Equipment rental
$13,000
$13,000

Occupancy costs
$15,000
$22,000

71. Are the materials costs and processing costs relevant in the choice between alternatives A and B? (Ignore the equipment rental and occupancy costs in this question.) A) Both materials costs and processing costs are relevant B) Neither materials costs nor processing costs are relevant C) Only processing costs are relevant D) Only materials costs are relevant Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making; Reporting LO: 1 Level: Easy

72. What is the differential cost of Alternative B over Alternative A, including all of the relevant costs? A) $105,000 B) $23,000 C) $128,000 D) $116,500 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making; Reporting LO: 1 Level: Easy

Solution:

Alternative A
Alternative B
Differential
Costs

Materials costs
$40,000
$56,000
$16,000

Occupancy costs
$15,000
$22,000 7,000

Differential cost

$23,000

Use the following to answer questions 73-74:

Two alternatives, code-named X and Y, are under consideration at Guyer Corporation. Costs associated with the alternatives are listed below.

Alternative X
Alternative Y

Materials costs
$41,000
$59,000

Processing costs
$45,000
$45,000

Equipment rental
$17,000
$17,000

Occupancy costs
$16,000
$24,000

73. Are the materials costs and processing costs relevant in the choice between alternatives X and Y? (Ignore the equipment rental and occupancy costs in this question.) A) Neither materials costs nor processing costs are relevant B) Only processing costs are relevant C) Only materials costs are relevant D) Both