Which of the following costs should be ignored when choosing among alternatives? A. opportunity...

Question:

Which of the following costs should be ignored when choosing among alternatives?

A. opportunity costs

B. sunk costs

C. out of pocket costs

D. differential costs

E. none of these

Fixed Costs:

When prepared using the variable costing format and other business decisions, fixed costs are necessary for computing the break-even point, the operating leverage, and net income.

Answer and Explanation: 1

  • The correct answer is B. sunk costs.


When deciding among alternatives, businesses should consider relevant costs. Relevant costs include variable costs and the avoidable portion of the fixed costs. Sunk costs are costs already incurred in the past and will not affect the current decisions. Thus, this type of cost is usually ignored when deciding among alternatives.


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Sunk Costs: Definition & Examples

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Chapter 31 / Lesson 8
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Sunk costs refer to incurred costs that can no longer be recovered. Learn more about the definition of sunk costs and explore examples of sunk costs in businesses.


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