Costs in Decision Making - Accounting

The video tutorial discusses decision making in business, focusing on three types of costs: differential, opportunity, and sunk costs. Differential cost is the difference between two alternatives, opportunity cost is the potential benefit lost when choosing one option over another, and sunk cost is an incurred cost that should not influence future decisions. Understanding these costs helps managers make informed decisions.

What is the primary goal of decision making as discussed in the video?

• To always choose the cheapest option

• To choose the most expensive option

• To identify relevant and irrelevant costs

• To avoid making any decisions

How is differential cost defined in the context of decision making?

• The total cost of all alternatives

• The cost of the least expensive alternative

• The cost of the most expensive alternative

• The difference in cost between two alternatives

Which of the following best describes opportunity cost?

• The difference in cost between two alternatives

• The cost of the chosen alternative

• The potential benefits lost when choosing one option over another

• The cost that has already been incurred

What is a sunk cost?

• A cost that can be recovered in the future

• A cost that has already been incurred and cannot be changed

• A cost that is considered when making future decisions

• A cost that is yet to be incurred

Why should businesses avoid using sunk costs in decision making?

• Because they can be easily changed

• Because they are the cheapest costs

• Because they are the most important costs

• Because they are irrelevant to future decisions