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

Exercise 79

Give examples of various costs Attending college involves incurring many costs. Give an example of a college cost that could be assigned to each of the following classifications. Explain your reason for assigning each cost to the classification.

a. Sunk cost.

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b. Discretionary cost.

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c. Committed cost.

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d. Opportunity cost.

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e. Differential cost.

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f. Allocated cost.

Step 1 of 2

Differential cost:

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

Allocated cost:

• A good costing system must allocate costs to cost object on the basis of the activities performed for producing the product and not on any arbitrary base.

Sunk cost:

• Sunk cost refers to a cost that has already been incurred and that cannot be recovered. Sunk costs are independent of any future events.

Opportunity cost:

• Operating leverage is the measurement of the degree to which an organization incurs a combination of variable and fixed costs. The higher the degree of operating leverage, the greater the possible danger from estimating risk.