The cost occurs when a business faces several similar options, and a choice must be made by picking one option and dropping the other. When business executives face such situations, they must select the most viable option by comparing the costs and profits https://www.bookkeeping-reviews.com/ of each option. Your company, Profits, Inc., currently advertises through newspapers and on your rarely-updated website. One of your new marketing executives suggests that the company should instead focus its advertising on television and social media.

#1. Determine the most lucrative production and pricing level

Andrea knew she could get extremely hungry in the mornings, but she did not want to spend the money. After weighing the positives and negatives of each decision, Terrence and Andrea felt satisfied with their decisions and headed down to the beach. Once a decision pyxero has been made between the two possibilities, the company has a defined set of costs. This is an investment that a company has already made and will not be able to recover. It is a useful tool for making strategic decisions in various business contexts.

Why are differential costs considered in a decision making situation?

  1. The first proposal results into a loss and hence is not acceptable.
  2. Most of these benefits come from additional sales, which leads to further advantages, such as economies of scale.
  3. A particular subset of incremental costs, called marginal cost, may concentrate just on the price of the last unit produced.
  4. Sunk costs refer to costs that a business has already incurred, but that cannot be eliminated by any management decision.
  5. In this scenario, the differential in cost is $1,500 ($2,000 – $500).

#2. Provide a quotation at a reduced selling price in order to improve capacity.