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#MarketRebound Discuss Cost Classification for Decision-Making. To make effective decisions, management must consider future costs and benefits. Key cost types include: 1. Differential/Incremental Cost: The cost difference between two alternatives. A decision is favorable if incremental revenue exceeds this cost. 2. Relevant and Irrelevant Costs: Relevant costs are future costs that vary between alternatives. Irrelevant costs remain unchanged regardless of the decision. 3. Opportunity and Imputed Costs: Opportunity cost is the benefit lost when choosing one option over another. Imputed costs are not recorded in accounts but considered for decision-making (e.g., required return on investment). 4. Sunk and Out-of-Pocket Costs: Sunk costs are past costs that can't be recovered (e.g., depreciation). Out-of-pocket costs are future cash expenses that directly impact decisions.
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Buy PIPPIN
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