Question

Find the best match

A. Sunk costs

B. Relevant cost

C. Opportunity cost

Past costs that are not relevant

John is considering buying new machines because last year he spent $4000 on machines that won’t work the $4000 is a

John can invest or he can leave his money in the bank and earn $4000 in interest the $4000 is a

Fixed cost or $10,000 variable costs are $40 per unit for decision makeing purposes the $40 is the

Answer 1

1) Past costs that are not relevant are A. Sunk Costs

2) John is considering buying new machines because last year he spent $4000 on machines that won’t work the $4000 is a A. Sunk Costs

3) John can invest or he can leave his money in the bank and earn $4000 in interest the $4000 is a C. Opportunity cost

4) Fixed cost or $10,000 variable costs are $40 per unit for decision makeing purposes the $40 is the B. Relevant cost

Sunk Costs are those costs which have Already been incurred. In Case 1) ans 2), the costs are already been incurred in the past. Hence, they are sunk costs

Relevant cost are those costs which are relevant for decision making. In case 4), $40 of Variable costs are relevant to decision making while fixed costs of $10,000 are irrelevant as it would remain constant irrelevant of the activity level.

Opportuinty Cost is the cost of next best alternative available. In this case, The next best alternative to investing is to leave money in bank. Hence, $4000 is opportuinty cost