The Key to Determining the Financial Difference Between Two Alternative

question 147

Multiple Choice

The key to determining the financial difference between two alternative courses of action is to identify the ________.

• A) opportunity cost of each alternative
• B) marginal cost
• C) differential costs and revenues
• D) joint cost of both alternatives

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Definitions:

Fixed Costs

Expenses unaffected by the quantity of production or sales, encompassing items like monthly rent, staff remuneration, and various insurances.

Cost Behaviors

The way in which costs change in relation to changes in a firm's level of production or activity, including fixed, variable, and mixed costs.

Variable Cost

Costs that change in proportion to the level of production or activity.

Operating Leverage

Refers to the extent to which fixed costs are used in a company's operations; high operating leverage means a larger proportion of fixed costs, leading to greater potential for profit variability with changes in sales volume.