RSM222H1 Chapter Notes - Chapter 12: Sunk Costs, Vertical Integration, European Cooperation In Science And Technology
Document Summary
Purpose of this chapter is to distinguish btwn relevant and irrelevant cost by illustrating their use in a wide range of decision making situations. 2 important aspects: none of the situations involve capital expenditures where the time value of money can be important, the key criterion used in the various decision situations is the max of operating income. Remember these terms: diffc, incc, oc, sc. If a cost will be the same regardless of the alternative selected, its ignored. Avoidable cost: any cost that can be eliminated (in whole or in part) by choosing one alternative over another in a decision making situation; also called relevant cost and differential cost. Irrelevant costs: sunk costs, future costs that do not differ btwn the alternatives. Avoidable cost, diff cost, incre cost, and relevant cost all interchangeable. Costs could be relevant in one decision but not another.
