B4-M4 Marginal Analysis

Question 1

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

Answer 1

Variable cost per unit

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

Question 2

what is opportunity cost?

Answer 2

the opportunity cost is the next best use of productive capacity

the maximum benefit foregone by using a scarce resource

Question 3

what is sunk cost?

Answer 3

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

Question 4

what is incremental (marginal) cost?

Answer 4

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

Question 5

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?

Answer 5

Absorption cost