AFM102 Chapter Notes - Chapter 12: Sunk Costs, Contribution Margin, Income Statement

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Relevant cost a cost that differs among the alternatives in a particular decision and will be incurred in the future. Cost that has already been incurred and can not be avoided regardless of that a manager decides to do: future costs that do not differ between the alternatives. Steps to identify costs and benefits relevant to a particular decision situation: eliminate costs and benefits that do not differ between alternatives. sunk costs i. future costs and benefit that do not differ between alternatives: use the remaining costs and benefits that do differ between alternatives in making the decision. Irrelevant piece of data may be used improperly, resulting in an incorrect decision. other fixed expenses do not differ between alternatives, they can be ignored: the only costs that differ between the alternatives are direct labour costs and fixed rental costs. Adding and dropping product lines and other segments. Look at product lines who are showing operating losses.

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