أنشئ حسابًا أو سجّل الدخول للانضمام إلى مجتمعك المهني.
"Decision making is often termed as relevant cost".
"A cost that has been incurred by an entity, and which it can no longer recover by any means, is the sunk cost". Example is the Development cost incurred for introducing new cost services, while customer acceptance for this service was failured informed by the marketing department. It is, therefore, suck cost is irrelevant cost for decision making purposes.
Marginal cost is also known as "Incremental Cost" and "Variable Cost". It is defined as "the change in total cost that comes from making an additional unit. It is relevant cost for the decision making.
A sunk cost is a retrospective (past) cost that has already been incurred and cannot be recovered. Sunk costs are sometimes contrasted with prospective costs while as marginal cost is the change in the total cost that arises when the quantity produced has an increment by unit. That is, it is the cost of producing one more unit of a good. In general terms, marginal cost at each level of production includes any additional costs required to produce the next unit
Sunk cost is the cost which is already incurred as hence is totally irrelevant for decision making as any decision would not do good to the cost which is already incurred.
On the oither hand, marginal cost is the additional cost which needs to be incurred if a particular alternative is selected. Thus, decision would be taken based on whose margial cost is the lowest.
Sunk cost is the cost that are incurred in the past. Sunk cost is irrelevent for decision making because they cannot be changed. Opportunity cost is the cost foregoing by selecting one alternative over another. It is the net return that could be realized if the resource were put to its next best use.
Sunk costs are historical costs which does not impact the current profitability.
Marginal cost is the cost of producing an extra unit of product. This is used to calculate the profitability of producing that extra unit and accordingly the decision whether to proceed or not.
Sunk cost is historical cost which have no value for future as Decision making relates to future, also called as Irrelevant Cost. Marginal cost is the additional cost of producing an addtional unit of a product. Marginal cost is totaly Relevant Cost for decision making.
Marginal cost is the decrease or increase cost of a production or output, whereas the sunk cost or irrelevant cost is a cost that's already incurred and cannot be recovered.
As for as relvancy concern treatment of these in capital budget decision
Sunk cost is irelevant for dicision making
Marginal Cost is relavant for dicision making
Sunk cost is irrelevant cost. It is the cost that has been already incured and is therefore irrelevant in decision making since they can't be reversed. Marginal cost is just another name of Variable cost.Marginal costs are always considered in decision making as they will be incured.E.g. If we are deciding to manufacture a product, the variable cost of that product will be incured in future because of the fact that we will be manufacturing that product.
As for sunk cost, it has already been incured.. e.g. cost of market research to assess the market conditions for one particular product. This market research cost will be irrelevant when making decision, based on the output of research, as to whether launch that particular product in that particular market or not
Sunk cost is an incurred cost. The incurrence cannot be reconsidered or reopened.. In the decision making sunk costs have to be absorbed only.
Marginal cost is a variable cost.This is the increasee of cost, when the total volume of output is icreased by one unit.
This has got various utilities in the decision making like self do or subcontract, do or hire,calculating the margin of safety, retain or sell,to calculate the break even etc.,
Sunk cost is past cost incurred and is always irrelevant in decision making. While marginal cost is variable cost for producing next unit and is always relevant in decision making.
