Question

1. "All future costs are relevant in decision making." Do you agree? Why?

Answer 1

Answer:

1. Not all future costs are relevant in decision making. Only relevant costs make a difference in decision-making. The future costs that change according to each specific alternative are relevant for the decision process. So, not all future costs are relevant in the decision making process.

2. Incremental cost - Also called differential costs, these costs are the difference in total costs after changing something or adding a new activity. These are relevant costs when evaluating some alternatives.

Opportunity cost - This is the benefit that we miss out when we choose one alternative over another. Although not present in general accounting, this approach is often used by managers.

Sunk cost - These are past costs. This is money that has been spent in the past and cannot be recovered. Thus, these costs are excluded from the decision-making process, as they are omnipresent and are not affected by the decision.