COMMERCE 2AB3 Study Guide - Final Guide: Sunk Costs, Vertical Integration, Opportunity Cost

• School: McMaster University
• Department: Commerce
• Course: COMMERCE 2AB3
• Professor: Karim Karim

Document Summary

True/false: fixed costs are sunk costs and are therefore irrelevant in decisions. Level: easy lo: 1 ans: f: a complete income statement must be prepared as part of a differential cost analysis. Level: medium lo: 1 ans: f: future costs that do not differ between the alternatives in a decision are avoidable costs. Level: medium lo: 1 ans: f: the book value of an old machine is always considered a sunk cost in a decision. Level: easy lo: 1 ans: t: a product that does not cover its allocated share of general corporate administrative expenses should be dropped. Level: easy lo: 2 ans: f: making rather than buying a part that goes into one of the company"s products would increase the company"s degree of vertical integration. Level: easy lo: 3 ans: t: in a special order situation that involves using existing idle capacity, opportunity costs are zero.