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3 cards from this section. Quick, good the night before a test.
What are relevant costs?
Think about costs that affect your choices moving forward.
True or False: Sunk costs are applicable to future decisions.
Remember, these costs are already spent.
What are relevant costs?
Focus on costs that change with your decisions.
True or False: Irrelevant costs can affect decision outcomes.
Think about costs that can be ignored in future planning.
A startup has already spent $10,000 on a failed marketing campaign. They are considering launching a new campaign that would cost an additional $15,000. Should they take the sunk cost into account when making their decision?
Review what sunk costs mean and their influence on future decisions.
A company has a choice between two suppliers that offer different pricing. Supplier A has a recurring annual fee of $5,000 while Supplier B has an initial setup cost of $8,000 but a recurring fee of only $3,000. Calculate which supplier has a relevant cost advantage over three years.
Consider all costs that will repeat or change over time as relevant costs.
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