ARBUS102 Chapter Notes - Chapter 9: Sunk Costs, Target Costing, Fixed Cost
20 Mar 2017
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Relevant costs: costs that differ between alternatives in a particular decision. Differential cost: the difference in costs between the two alternatives. Avoidable cost: any cost that can be eliminated (in whole or in part) by choosing one alternative over another in decision-making situation. Opportunity cost: the potential benefit given up when one alternative is selected over another. Sunk cost: any cost that has already been incurred and cannot be changed by any decision made now or in the future: a sunk cost is an irrelevant cost. There are two important characteristics of relevant costs: they differ among alternatives, they are costs that will be incurred in the future. Common fixed costs: a fixed cost that supports the operations of more than one segment of an organization and is not avoidable in whole or in part by eliminating any one segment. Make or buy decision: a decision on whether an item should be produced internally or purchased from an outside supplier.
