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9 Cards in this Set

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Differential analysis
Differential analysis looks at effects of different courses of action
Uses estimated revenues, costs
Focuses on relevant revenues, costs
Sunk costs are past costs that are not relevant
Differential Revenue
Increase or decrease in revenue derived from a particular course of action compared to an alternative
Differential Costs
Increase or decrease in costs derived from a particular course of action compared to an alternative
Opportunity Costs
Measures the cost of an alternative choice that is foregone
ROLE OF COST CONCEPT
Uses “cost +” to set selling price that provides sufficient profit.
3 COST DETERMINANTS
Total cost concept
Markup added to total cost
Product cost concept
Markup added to product costs
Variable cost concept
Markup added to variable costs
MARKUP FORMULA:Total Cost
Markup % =
Desired profit / Total cost
MARKUP FORMULA:Product Cost
Markup % =
(Desired profit + Selling, Administrative expense) / Manufacturing cost
MARKUP FORMULA:Variable Cost
Markup % =
(Desired profit + Total fixed costs) / Total variable costs