There are certain costs that are normally to be considered in the decision making situation. Those are;
Sunk cost is a type of cost that has been incurred in the past. It is also known as historical cost. In decision-making, this is considered as irrelevant, because whether or not you take up the option, this particular cost is past and will not make any difference in the choice of decision made.
Opportunity cost is the foregone benefit due to choosing another alternative.
Relevant cost is a type of cost which will make a difference in the choice of an option, and is therefore relevant for decision-making purposes.
Differential cost refers to the difference in costs between decision options.
Incremental cost is the increase in cost if a particular option is chosen.
Book value of fixed asset is the original value of the fixed asset when first acquired, therefore considered as irrelevant for decision-making purposes.
Special fixed costs relate to costs that are incurred as a result of taking the option, which otherwise would not have been incurred. Therefore, this cost is relevant in a decision-making situation.
No comments:
Post a Comment