ACTG 2020 Lecture Notes - Lecture 1: Historical Cost, Variable Cost, Opportunity Cost
Document Summary
Relevant costs possess two characteristics (1) they are future costs and (2) they differ across alternatives: they relate to the future (not the past like depreciation costs) Same characteristics apply to benefits: ex: difference in revenues. Another relevant cost is opportunity cost: however it is never an accounting cost, it is important in decision making. Depreciation represents an allocation of cost already incurred: it is a sunk cost cannot be affected by any future decision, sunk costs are always the same across alternatives, therefore always irrelevant. However, salvage value for a machine is a relevant cost for certain decisions (ex: changing from a producer to distributer, how much value can be realized from the machines that were used for production) Ex: a company pays a year for it"s website server: no matter which alternative chosen, they will still keep the website.
