B4-M4 Marginal Analysis Flashcards

1
Q

what is a minimum cost per unit of a special order assuming available capacity?

A

Variable cost per unit

Variable cost of current utilization + contribution margin from the next best alternative

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2
Q

what is opportunity cost?

A

the opportunity cost is the next best use of productive capacity

the maximum benefit foregone by using a scarce resource

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3
Q

what is sunk cost?

A

costs incurred in the past that will not change as a result of any decision made in the future. These costs are considered irrelevant in marginal decisions

ex: R&D cost

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4
Q

what is incremental (marginal) cost?

A

are the additional costs incurred to produce an additional amount of product above and beyond current production levels

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5
Q

which cost is not relevant in situations when management must decide on accepting or rejecting one-time-only special orders, and where there is sufficient idle capacity?

A

Absorption cost

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