Management uses differential analysis to decide between two viable options. Proper use of differential analysis requires the ability to differentiate between relevant and irrelevant costs; that is - costs that are important to the decision and costs that have no weight on which choice is made.

At Global Airways, Penny Piper, Manager of Flight Scheduling, needs to make a decision about flight scheduling. Presently Global Airways flies from Chicago to Honolulu nonstop, but she is considering making a stop in Phoenix. The route would attract some additional passengers, but would also incur additional costs.

Penny has prepared the following data to help her in making this decision.

1. Identify each cost as relevant or irrelevant.
   

Revenues and Costs Under Two Alternatives Nonstop With Stop in Differential Route Phoenix Amount Passenger Revenue $200,000 $225,000 $25,000 Cargo Revenue 50,000 50,000 O Landing Fee in Phoenix O 5,000 (5,000) Use of Airport Gate Facilities O 3,000 (3,000) Flight Crew Cost 2,000 2,500 (500) Fuel 25,000 30,000 (5,000) Meals & Services 4,000 5,000 (1,000) Aircraft Maintenance 1,000 1,000 Total Revenue less Costs 218,000 228,500 (10,500)