BUS 215 Chapter Notes - Chapter 12: Sunk Costs, Marginal Cost
Chapter 12 Notes
• When making decisions, consider relevant costs and relevant benefits
• Differential cost: a future cost that differs between any 2 alternatives
• Differential revenue: future revenue that differs between any 2
alternatives – also a relevant benefit
• Incremental cost: an increase in cost between 2 alternatives
• Avoidable cost: a cost that can be eliminated by choosing one alternative
over another
• Sunk cost: a cost that has already been incurred and cannot be changed
regardless of what a manager decided to do
o No impact on future cash flows
o Ignored when making decisions
• Real/economic depreciation: reduction in resale value of an asset
through use or over time
• Vertically integrated: when a company is involved in more than one
activity in the entire value chain
• Special order: a one-time order that is not considered part of the
opay’s oral ogoig usiess
• Joint products: 2 or more products produced from a single raw materials
input
• Split – off point: point in manufacturing process where joint products can
be recognized as separate products
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