# QUUr decision with only relevantnumbers.Problem 15Marita Lo desires to purchase a new front office computer system for her Lo Motel (LOMO).After considerable discussion with purveyors, she has narrowed her choices to systems soldby ABC Company and XYZ Computers. The system proposed by each company is expectedto have a useful life of seven years. She believes the alternative systems are equívalent forproviding services required by the LOMO; therefore, her focus is cost. The associated costs0000of each system are as follows: 334 Chapter 6ABCXYZ000.Cdb ComputersCo.002.000\$25,000\$30,000Initial costAnnual costs:25,00025,000Labor1,000800Utilitiesips2,0002,000SuppliesRequred3,0002,500Maintenance1.Salvage value(in 7 years)5,0008,000Required:molls rbeekat amoom1. Which costs are irrelevant?2. Which system should Marita purchase? (Ignore the time value of money.) Supportyour decision with numbers.

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Asked Feb 18, 2020
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## Expert Answer

Step 1

Differential cost analysis of two alternatives is made by taking the relevant costs of the alternatives. The decision to choose any alternative is made after considering the differential analysis.

Step 2

1)

Irrelevant costs are those costs which does not change with the change in management decision. Here, the cost of labor and supplies is constant with any decision. They do not change with the change in the decision. Therefore,

The cost of labor and the cost of supplies are irrelevant costs.

Step 3

2)

The system that should be purchased is decided by taking the differential analysis of both the systems. The differential analysis is as follows:

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