AYB225 Lecture Notes - Lecture 10: Net Present Value, Decision Rule, Juice Plus

• School: QUT
• Department: Accountancy
• Course: AYB225
• Professor: All

Document Summary

Information accumulated for decision-making will include many characteristics, but also some that are specifically relevant to the decision-needs of managers. Opportunity cost is the revenue foregone by the next-best alternative being considered. These are costs which have been incurred in the past. They do not affect future costs and cannot be changed by any current or future action. A common error when doing decision-making problems is to include sunk costs in the analysis. Marginal cost is the additional cost incurred to produce one additional unit. In accounting problems, marginal cost is frequently equated with variable cost. A cost is a relevant cost only if the cost differs across the different alternatives being considered: relevant costs are also described as differential or incremental costs. If a particular total cost is the same in both alternatives being considered, that cost does not influence the decision, and is therefore not relevant.