Acct 505 discussion 2021

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12-1 What is a relevant cost? Answer A relevant cost is cost that differs in total between the alternatives in a decision. 12-2 Define the following terms: incremental cost, opportunity cost, and s... unk cost. Answer An increment cost is the change in cost that will result from some proposed action. An opportunity cost is the benefit that is lost or sacrificed in rejecting some course of action. A sunk cost is a cost that has already been incurred and can’t be changed by any future decision. 12-3 Are variable costs always relevant costs? Explain. Answer No. Variable costs are relevant costs only if they differ in total between the alternatives under consideration. 12-4 “Sunk costs are easy to spot—they're the fixed costs associated with a decision.” Do you agree? Explain. Answer No. Not all fixed cost are sunk-only those of which cost has already been irrevocable incurred. A variable cost can be a sunk cost, if it has already been incurred. 12-5 “Variable costs and differential costs mean the same thing.” Do you agree? Explain. Answer No. A variable cost is a cost that varies in total amount in direct proportion to changes in the level of activity. A differential cost measures the difference in cost between two alternatives. If the level of activity is same for the two alternative, a variable cost will be unaffected and will be irrelevant. 12-6 “All future costs are relevant in decision making.” Do you agree? Why? Answer No. Only those future costs that differ between the alternatives under consideration are relevant. 12-7 Prentice Company is considering dropping one of its product lines. What costs of the product line would be relevant to this decision? What costs would be irrelevant? Answer Only those cost that can be avoided as a result of dropping the product line are relevant in the decision. Sunk costs and costs that will not differ regardless of This study source was downloaded by 100000829820709 from CourseHero.com on 09-06-2021 09:10:29 GMT -05:00 https://www. [Show More]

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