Chapter 2 Lecture Notes - student copy

Chapter 2 Lecture Notes - student copy - Monday &...

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Chapter 2 – Identifying and Estimating Costs and Benefits Relevant Costs and Revenues When making a decision you need to determine which revenues and costs are relevant and which are irrelevant. In order for a cost or benefit/revenue to be relevant it must meet two criteria: 1. Sunk Costs – Key note… Relevant information must involve costs and benefits to be realized in the future . Therefore past/historical/sunk costs may be helpful as a basis for making predictions , however past costs themselves are always irrelevant when making decisions. 2. How do costs behave? Variable or Fixed Cost Driver – Variable Costs – Example – the paper cost of tests will vary with the number of students each professor has in their class. The cost driver of a variable cost is the level of activity or volume whose change causes proportionate changes in the variable cost. Fixed Costs –
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This note was uploaded on 12/17/2010 for the course ACC 02320 taught by Professor Devidal during the Fall '09 term at University of Texas at Austin.

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Chapter 2 Lecture Notes - student copy - Monday &...

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