Relevant (I.e., Differential) Cost Analysis

question 1

Multiple Choice

Relevant (i.e., differential) cost analysis:

• A) Takes all variable and fixed costs into account to analyze decision alternatives.
• B) Considers only variable costs as these are the costs that change with each decision alternative.
• C) Considers only nonfinancial and strategic factors associated with each decision alternative.
• D) Considers all variable and fixed future costs that change with each decision alternative.
• E) Allows the decision maker to group all types of costs together to facilitate decision making.

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Definitions:

Diminishing Marginal Returns

Refers to a point in production where adding an additional factor of production results in a smaller increase in output.

Average Variable Costs

The total variable costs divided by the quantity of output produced, reflecting the average cost of producing each unit.

Average Fixed Costs

Costs in production that are stable and do not vary with the amount of output, divided by the quantity of goods produced.

Output

The total amount of goods or services produced by a person, machine, factory, country, etc., within a certain period.