In differential cost analysis in the context of "Special Pricing, consideration is given to "Sunk Cost"...
In differential cost analysis in the context of "Special Pricing, consideration is given to "Sunk Cost" (True or False?)
Homework Answers
False .
Under Differntial cost , consideration is given to only relevant cost , ie that cost which affect the decision between two alternative
Relevant cost are the cost that differ between two alternative . Suppose cost of making or buying , if we buy from outside , relevant cost will be variable cost of making becuase this cost are avoidable when be buy product directly from outside . Opportunity cost is also relevant cost ie from above example if from buying from the externala market it is assume that the machinery can be rented then the rental income will be the opportunit cost that will gone if we continue making the product.
Whereas Sunk cost are irrelevant cost , it is the cost that are already incurred and will not change the decision between two alternative . Sunk cost is always irrelevant cost.
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