Question

When conducting​ cost-benefit analysis, you should consider

A. Total costs and benefits
B. Every​ cost, whether it has been incurred yet or not
C. Only marginal costs and marginal benefits
D. Only those costs and benefits that have already been incurred

Answer 1

The correct answer is option A. Total costs and benefits.

Step-by-step explanation:

A cost-benefit analysis is a tool to consider the viability of a decision in a business being an important part of the decision making process. The cost-benefit analysis consists in acknowledging the actions that will take to achieve one decision in order to consider if it will be profitable or not. For that there is a need to make a list of products and services with the COST that will be necessary. In this list of costs have to be added two main elements:

1. First, all the costs that implies the actions in the list. There are two types of costs: those that are already spent and those that have not been already spent. It is incomplete for an analysis to report only the incurred costs, as mentioned option D, as only report costs, incurred or not, as mentioned in option B. For the analysis not only considers what will be spent but what will have in profit.
2. Second, all the benefits in terms of profit. The analysis wants to stands out that the costs will bring back money that is called benefit. This second element is the core of the decision-making as the comparison on the costs with the benefits could make the final call if the decision is good or bad for the business.

A business always want to have the most of the benefits, so when they make a decision they always try to maximize their effectiveness, in other words, they will try to reduce the costs until an optimum point where the benefit increases. This is an important part of Economies of Scale and have to be integrated in the analysis, but neither is the only part that have to be consider in the cost-benefit analysis, as mentioned in option C.

The purpose of the analysis of the costs and benefits, with all the considerations above, is to see clear that a decision will bring profit to the business, this is why it have to be included the total costs and benefits, as mentioned in option A, because the comparison of both will make clear that the decision is beneficial or not for the business in monetary terms.