Decision making using cost terms
Khurram Ali Mubasher, MSc, ACMA, CGMA, CPA
Shaping future leaders in Accounting & Finance | 12+ Years Corporate Experience | Associate CIMA & CPA | Educator | Sentiment Analysis Enthusiast
Refresher
Differential costs/benefits are relevant benefit/cost to be considered for decision makings. These are the additional benefits or costs that arise because of decision that is being taken. Hence making it a relevant cost in decision making.
Opportunity cost is the cost of next best option, option forgone, lost profit because of the opportunity being selected. It usually implies on resources that are scarce in nature, making it a relevant cost for decision making
Sunk cost represent resources that are already owned by the organisation These are results of past decisions and will not be changed by any decisions made in the future, hence irrelevant to decision making.
Discussion to gauge your level of understanding
Defence memorial hospital's radiology department is considering replacing an old inefficient xray machine with new modern, high quality, low cost and efficient xray machine.
Instead of buying new X-ray machine, the Laboratory is pursuing hospital’s management to buy a new blood analyser.
For each of the items below which one of these should be considered as differential cost, a sunk cost, or an opportunity cost in the decision.
Cost of the old X-ray machine. The salary radiology's departments head of Department. The salary of the head of the laboratory department . Cost of the new colour X-ray printer. Rent of radiology department. Cost of old X-ray machine. Cost of electricity to run X-ray machines
Student at Iqra University (Official)
2 年Dua Waheed 56639 Mon 11:45-2:45 1. Cost of X-ray machine is sunk cost because no future decision will make any change 2. None of the above as it is not relevant with any of the given situation. It could also be differential cost if the head of department creates value by providing efficient and relevant services to the patient 3. None of the above 4. Cost of new X-ray printer is a differential cost because this will create additional benefit therefore it is very relevant cost in decision making 5. This is an opportunity cost as hospital does not have an owned building or a section to run a radiology therefore a premises is rented 6. The cost of an old X-ray machine is a Sunk cost because no future decision can change the fact that it was perchased in the past 7. It is a differential cost for the hospital as by providing electricity to run the X-ray machine and thereby generates revenue.
integrated supply chain & Logistics specialist operation (DEX) at Mondelēz International
2 年Hafiz Syed Adnan Ahmed. Reg#: 10230 Sunday : 90:00 - 12:00 1 cost of old x-ray machine (sunk cost) reason it has been previously purchased by the company and it cannot be recovered at the same cost 2 none of the above 3 none of the above 4 cost of new x-ray printer in compare to differential cost with cost of alternate machine that could be utilized instead of new color x ray printer 5 none of the above 6 cost of old x-ray machine as the first one 7 cost of electricity to use x-ray machine is differential cost because its not use continuously its been used when needed
BBA | Iqra University | HR Management | Seeking an Entry-level Position in an Reputable Org.
2 年Eiman Naeem 54711. Monday 11. 45 to 2.45? 1) its a sunk cost because it’s already in possession of hospital?2)none of the above?3)none of the above?4)differential cost because it’s a cost which arises as hospital decides?5)none of above?6)sunk cost as already mentioned above that it’s in hospitals custody?7)differential cost because it will rise due to decision made of new x-ray machine
Credit Analyst Habib Bank Limited
2 年Shahzad uzman siddique I'd 10638 Class timing Sunday morning 9 to 12 1: Cost of old X-ray Machine is Sunk Cost because this is the result of past decision, and will not be charged by any decisions made in the future. 2: None of above 3: None of above 4: Cost of new colour X-ray printer is Differential Cost because it is relevant cost for decision making. 5: None of the above 6: Cost of old X-ray Machine is Sunk Cost because it is the result of past decision. 7: Cost of Electricity to run X-ray Machine is Differential Cost because it is relevant cost for decision making.....
Internal Audit, Risk Assessment, Reporting, |Rotaractor
2 年Hammad Ahmed 13547 1.its a sunk cost because its already purchased by the company and this cost can’t be recovered. 2.none of the above 3.none of the above 4.differential cost because its a better cost substitute machine. 5.none of the above 6.sunk cost because its already in hospital custody as mentioned above. 7.differential cost because its a decision making cost of new x-ray machine.