If One Fails to Account for Implicit Costs in Decision

question 123

Multiple Choice

If one fails to account for implicit costs in decision making, then applying the cost-benefit rule will be flawed because:

• A)the benefits will be overstated.
• B)the costs will be understated.
• C)the benefits will be understated.
• D)the costs will be overstated.

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Definitions:

Fixed Costs

Expenses that do not change with the level of production or sales over the short term, such as rent or salaries.

Direct Labor

This refers to the wages and other costs for labor directly involved in the production of goods or the provision of services, not including indirect labor costs such as maintenance.

Differential Profit

The difference in profit between two alternative decisions or time periods.

Allocated Fixed Costs

Fixed costs that are assigned to a specific department, project, or segment of a business.