TOPIC 11 RELEVANT COST IN DECISION MAKING

1. Concept

1.1. costs and revenues that do no differ across alternatives can be ignored when trying to choose between alternatives

2. Type Cost

2.1. Opportunity

2.1.1. costs that must give up the opportunity from some other course of action by choosing one course of action only

2.2. Sunk

2.2.1. costs that have already been incurred and will not be changed or avoided by any present or future decisions

2.3. Incremental

2.3.1. costs that change at first glance might seem contrary to intuition

2.4. Differential

2.4.1. cost that make difference between 2 alternative decisions @ of a change in output levels

2.5. Avoidable

2.5.1. costs that can be eliminated by not engaging in @ or no longger performing an activity

2.6. Unavoidable

2.6.1. is an expenditure for which there is a firm spending commitment in the short term