Accounting: What the Numbers Mean 9th Edition by Wayne W McManus, Daniel F Viele, David H Marshall

Exercise 73

Application of cost terminology Assume that you have decided to drive your car to Florida for the spring break. A classmate learns about your plans and asks about riding along with you. Explain how you would apply each of the following cost concepts to the task of determining how much, if any, cost you would take into consideration for the purposes of setting a price to be charged for taking the classmate with you.

a. Differential cost.

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b. Allocated cost.

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c. Sunk cost.

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d. Opportunity cost.

Step 1 of 4

The application of the provided cost terminology can be considered as follows:

a.

Differential cost:

• Differential cost is the cost that differs between alternatives in a decision-making situation. It is also known as incremental cost

• How much amount of costs will vary if a friend comes along rather than someone else?