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In: Accounting

Chapter 1 Managerial Accounting and Cost Concepts

1–12 What is the contribution margin?

1–13 Define the following terms: differential cost, sunk cost, and opportunity cost.

1–14 Only variable costs can be differential costs. Do you agree? Explain.

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Expert Solution

1-12 The contribution margin is total sales revenue less total variable expenses.

1-13 A differential cost is a cost that differs between alternatives in a decision. An opportunity cost is the potential benefit that is given up when one alternative is selected over another. A sunk cost is a cost that has already been incurred and cannot be altered by any decision taken now or in the future.

1-14 No, differential costs can be either variable or fixed. For example, the alternatives might consist of purchasing one machine rather than another to make a product. The difference between the fixed costs of purchasing the two machines is a differential cost. 

1-12 The contribution margin is total sales revenue less total variable expenses.

1-13 A differential cost is a cost that differs between alternatives in a decision. An opportunity cost is the potential benefit that is given up when one alternative is selected over another. A sunk cost is a cost that has already been incurred and cannot be altered by any decision taken now or in the future.

1-14 No, differential costs can be either variable or fixed. For example, the alternatives might consist of purchasing one machine rather than another to make a product. The difference between the fixed costs of purchasing the two machines is a differential cost. 

devender singh answered 2 years ago
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