Relevance and Faithful Representation Are the Fundamental Qualities of Useful

question 47

Essay

Relevance and faithful representation are the fundamental qualities of useful information.
(a) Briefly define each term.
(b) Why are these characteristics important to users of financial statements?

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Definitions:

Average Variable Cost

The total variable costs divided by the quantity of output, representing the variable cost per unit of output.

Marginal Cost

The escalation in total financial outlay due to the creation of one more unit of a product or service.

Average Total Cost

Calculated by dividing the total cost to produce a product by the quantity of the product produced, it represents the per-unit cost of production.

Bygones

In economics, the principle of "letting bygones be bygones" implies that past costs, which cannot be recovered, should not factor into future economic decisions.