Jimbob Company has two business alternatives - A & B with different total annual costs as set out below: Additionally,if alternative B is chosen the business will have to use some space for its own purposes that is currently being rented to an outside business for $5,000 per year. What are the total differential costs between the two alternatives?

Question

Jimbob Company has two business alternatives - A & B with different total annual costs as set out below:  Additionally,if alternative B is chosen the business will have to use some space for its own purposes that is currently being rented to an outside business for $5,000 per year. What are the total differential costs between the two alternatives?

Quizplus · Accepted Answer

To find the differential cost, we need to subtract the total cost of alternative A from the total cost of alternative B. 
Total cost of alternative A = $25,000
Total cost of alternative B = $22,000 (annual cost) + $5,000 (rental cost) = $27,000
Differential cost = $27,000 - $25,000 = $2,000.
Therefore, the best choice is alternative B as it has a higher total cost than A but the differential cost is lower, making it more cost-effective in the long run.

Jimbob Company Has Two Business Alternatives - a & B