For Make-Or-Buy Decisions, Relevant Costs Include ________

question 158

Multiple Choice

For make-or-buy decisions, relevant costs include ________.

• A) incremental costs plus sunk costs
• B) incremental costs plus opportunity costs
• C) differential costs plus fixed costs
• D) incremental costs plus differential costs

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Definitions:

Incremental Cost Approach

The method of analyzing the financial information needed for decision making by considering only the costs and benefits that change due to the decision.

Discount Rate

The interest rate used to discount future cash flows back to their present value.

Inflation

The rate at which the general level of prices for goods and services is rising, eroding purchasing power.

Cash Outflow

Payments or expenditures of cash, representing the movement of cash out of a business for expenses, investments, or acquisitions.