ACIS_Chapter_13_Slides_with_blanks-1

ACIS_Chapter_13_Slides_with_blanks-1 - Relevant Costs for...

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Relevant Costs for Decision Making Chapter Thirteen
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Cost Concepts for Decision Making Relevant cost - cost that differs between alternatives. Should I… 1. Buy a new car for $25,000? 2. Buy a used car for $10,000? 3. Rent a car for $300 per month?
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Identifying Relevant Costs Avoidable cost - can be eliminated (in Avoidable cost - can be eliminated (in whole or in part) by choosing one whole or in part) by choosing one alternative over another. alternative over another. Avoidable costs are relevant costs. Avoidable costs are relevant costs. Unavoidable costs are irrelevant costs. Unavoidable costs are irrelevant costs.
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Identifying Relevant Costs Two categories of costs that are never relevant in any decision include: Sunk costs. Future costs that do not differ between the alternatives.
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Different Costs for Different Purposes Costs that are relevant in one situation may not be relevant in another situation.
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Identifying Relevant Costs Suppose a student who attends Virginia Tech would like to go to Washington, D.C. for the weekend. She can drive her own car or take the bus. By car it is 270 miles from Blacksburg to the hotel in Washington, D. C. Which alternative is less expensive? Annual Cost of Fixed Items Cost per Mile 1 Annual straight-line depreciation on car 2,800 $ 0.280 $ 2 Cost of gasoline 0.090 3 Annual cost of auto insurance and license 1,380 0.138 4 Maintenance and repairs 0.065 5 Parking fees at school 160 0.016 6 Total average cost 0.589 $ Automobile Costs (based on 10,000 miles driven per year)
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Identifying Relevant Costs 7 Reduction in resale value of car per mile of wear 0.026 $ 8 Round-tip bus fare 88 $ 9 Benefits of relaxing on train trip ???? 10 Cost of putting dog in kennel while gone 40 $ 11 Benefit of having car in Washington, D.C. ???? 12 Hassle of parking car in Washington, D.C. ???? 13 Per day cost of parking car in hotel lot in D.C. 25 $ Some Additional Information
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Identifying Relevant Costs Which costs and benefits are relevant? Which costs and benefits are relevant? Relevant? 1 Annual straight-line depreciation on car 2 Cost of gasoline 3 Annual cost of auto insurance and license 4 Maintenance and repairs 5 Parking fees at school
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Identifying Relevant Costs Which costs and benefits are relevant? Relevant? 7 Reduction in resale value of car per mile of wear 8 Round-tip bus fare 9 Benefits of relaxing on bus trip 10 Cost of putting dog in kennel while gone 11 Benefit of having car in Washington, D.C.
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This note was uploaded on 04/02/2008 for the course ACIS 2116 taught by Professor Cmeasterwood during the Fall '08 term at Virginia Tech.

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ACIS_Chapter_13_Slides_with_blanks-1 - Relevant Costs for...

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