B4-M4

Question 1

Relevant costs

Answer 1

• pertains to its potential to affect the decision
• used when considering alternatives, such as discontinuation
• direct, prime, discretionary, incremental, opportunity, controllable, avoidable

Question 2

Opportunity cost

Answer 2

=Implicit costs (ignored in financial accounting)
-cost of foregoing the next best alternative
-net benefit given up
-fixed costs will still be incurred if alternative is taken
=CM of project not taken
=0 when @ excess capacity & no alternative use

Question 3

Costs that are not relevant

Answer 3

• irrelevant, sunk, uncontrollable, unavoidable, historical

- variable not always relevant