ACC 312 Study Guide - Midterm Guide: Financial Statement, Sunk Costs, Opportunity Cost
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Learning objective 7: define and give examples of cost classifications used in making decisions: differential costs, opportunity costs, and sunk costs. It is important to realize that every decision involves a choice between at least two alternatives. The goal of making decisions is to identify those costs that are either relevant or irrelevant to the decision. To make decisions, it is essential to have a grasp on three concepts: Opportunity cost the potential benefit that is given up when one alternative is selected over another: these costs are not usually entered into the accounting records of an organization, but must be explicitly considered in all decisions. Sunk cost a cost that has already been incurred and that cannot be changed by any decision now or in the future. Quick check relevant costs (cid:862)in business insights(cid:863) (cid:862)what nu(cid:373)ber did you have i(cid:374) mi(cid:374)d(cid:863) (cid:894)see page 53(cid:895)