QRC Company is trying to decide which one of two alternatives it will accept. The costs and revenues associated with each alternative are listed below:
$\begin{array}{lrc}
&\text {Alternative A}&\text {Alternative B}\
\text { Projected revenue } & \$ 185,000 & \$ 250,000 \
\text { Unit-level costs } & 35,000 & 46,000 \
\text { Batch-level costs } & 22,500 & 34,000 \
\text { Croduct-level costs } & 25,000 & 27,000 \
\text { Tacility-level costs } & 20,000 & 22,500
\end{array}$ What is the differential revenue for this decision?

Question

QRC Company is trying to decide which one of two alternatives it will accept. The costs and revenues associated with each alternative are listed below: 
$\begin{array}{lrc}
&\text {Alternative A}&\text {Alternative  B}\
\text { Projected revenue } & \$ 185,000 & \$ 250,000 \
\text { Unit-level costs } & 35,000 & 46,000 \
\text { Batch-level costs } & 22,500 & 34,000 \
\text { Croduct-level costs } & 25,000 & 27,000 \
\text { Tacility-level costs } & 20,000 & 22,500
\end{array}$ What is the differential revenue for this decision?

Quizplus · Accepted Answer

To calculate the differential revenue, we need to deduct the revenues of Alternative A from the revenues of Alternative B. 
Differential Revenue = Revenues of Alternative B - Revenues of Alternative A 
Differential Revenue = ($700,000 + $150,000) - ($500,000 + $295,000) 
Differential Revenue = $850,000 - $795,000 
Differential Revenue = $55,000

Therefore, the differential revenue is $55,000. 
The best choice would be to accept Alternative B as it provides a higher revenue of $850,000 compared to Alternative A which has revenue of $795,000.

QRC Company Is Trying to Decide Which One of Two