ACCT226 ch.13 Differential Analysis: Key to Decision-Making

Differential costs and benefits that should be considered in a decision ______.

may be qualitative or quantitative

Average costs ______.

-are often misleading -containing sunk costs

Depreciation of existing assets is relevant to decisions.

False

The first step in decision making is to ______.

define the alternatives

Costs and benefits that should be ignored when making decisions are called ______ costs and benefits.

irrelevant

Future costs and benefits that do not differ between alternatives are ______ costs to the decision-making process.

irrelevant

Costs that have no impact on future cash flows and are irrelevant to decisions are ______ costs.

sunk

Which of the following should not be included in the analysis when making a decision?

-Sunk costs -Non-differential future costs

A cost that can be eliminated by choosing one alternative over another is a(n) _______ cost.

avoidable

A future cost that is not the same between any two alternatives is known as a(n) _________, incremental, or avoidable cost.

differential

Focusing on future costs and benefits that are not the same between the choices is ______.

differential analysis

Irrelevant costs include:

-future costs that do not differ b/w alternatives -sunk costs

Some decisions have only one alternative and cannot consider steps in decision making.

False

The key to effective decision making is ______.

differential analysis

Costs and benefits that always differ between alternatives are ______ costs and benefits.

relevant

When making a decision, qualitative differences between alternatives ______ be ignored.

should not

A cost that has already been incurred and cannot be avoided regardless of what a manager decides to do is referred to as a(n) _____ cost.

sunk

An increase in cost between two alternatives is a(n) ______ cost.

incremental