Strategic Alternatives and Cost-Benefit Analysis Flashcards

Developing policies, creating the organizational structure, and implementing the plan.

It evaluates whether a proposed change will improve performance by focusing on future costs and revenues that differ among alternatives.

• Marginal revenue is the increase in total revenue from selling one additional unit.
• Marginal cost is the increase in total cost from producing one additional unit.

• Relevant factors focus on the future.
• Relevant factors differ among alternatives.

• Relevant revenues are additional revenues expected from a specific action.
• Relevant costs are additional costs expected from a specific action.

A cost that has already been incurred and cannot be recovered, making it irrelevant to future decision-making.

• Differential revenues and costs are the differences between alternatives.
• Incremental revenues and costs are additional revenues or costs from a specific action.

• Avoidable costs are costs that can be eliminated if a specific action is taken.
• Unavoidable costs are expenses that persist regardless of the decision made.

They represent the benefit foregone by choosing one alternative over another and are relevant because they occur in the future and differ across alternatives.

The cost of forgoing the next best alternative when making a decision.

When a resource is limited or constrained.

The process of comparing two or more alternatives to determine which option provides the greatest benefit.

False

Decisions about whether to manufacture a product or component internally or purchase it from an external supplier.

• Variable costs
• Avoidable fixed costs
• Opportunity costs