Business 2: Marginal Analysis Flashcards
True or false.
Marginal analysis is used when analyzing business decisions such as the intro of a new product or changes in output levels of existing products, acceptance or rejection of special orders, making or buying a product or service, selling or processing further, and adding or dropping a segment.
True
What does marginal analysis focus on?
Relevant revenues and costs that are associated w/ a decision
Revenues and costs related to decisions that will affect future periods are relevant only if what?
- only if they change as a result of selecting different alternatives
Can relevant costs be either fixed or variable?
YES
Are direct costs relevant costs?
- Usually YES
- Costs that can be identified w/ or traced to a given cost object (DM and DL)
Are prime costs relevant costs?
- Generally YES
- Include DM and DL costs
Are discretionary costs relevant costs?
- Generally YES
- Costs arising from periodic budgeting decisions by management
Are costs to maintain landscaping at a corporation’s headquarters relevant costs?
- Generally YES
- Viewed as discretionary costs
Are incremental costs relevant costs?
- YES
- Additional costs incurred to produce an additional amount of the unit over the present output
What are incremental costs also known as?
- Marginal costs
- Differential costs
- Out-of-pocket costs
Are opportunity costs relevant costs?
- YES
- Cost of foregoing the next best alternative when making a decision
Are costs associated with alternative uses of plant space relevant costs?
- YES (opportunity cost)
Are sunk costs relevant costs?
- NO
- Unavoidable b/c incurred in past and cannot be recovered as a result of a decision
Is the cost of old equipment a relevant cost to a replacement decision?
- NO (sunk cost)
Are controllable costs relevant costs?
- YES, if they will change a a result of selecting different alternatives
