AFM102 Chapter Notes - Chapter 12: Sunk Costs, Contribution Margin, Vertical Integration
Document Summary
Key to making good decisions: compare only the relevant costs/benefits for each alternative. What is considered a relevant cost is entirely a function of setting, alternatives and question being asked. Only costs and benefits that different in total among alternatives and that will be incurred in the future are relevant in a decision o. If a cost will be the same regardless of the alternative selected, then it can be ignored. Relevant cost: a cost that differs among the alternatives under consideration and that will be incurred in the future (costs that has not already been incurred) Ex. a product supervisor"s salary is typically irrelevant in deciding whether or not to accept a special order from a customer, but can be relevant when deciding whether to keep or drop that product line. Avoidable cost: a cost that can be eliminated in whole or in part by choosing one alternative over another.