Question

When analyzing two alternatives which is NOT true?

a-Isolating relevant costs gives a different answer than using all costs.
b-Isolating relevant costs is called the differential cost approach.
c-Mingling irrelevant costs with relevant costs may cause confusion and distract attention from the information that is critical.

Answer 1

The statement 'Isolating relevant costs gives a different answer than using all costs' (option a) is NOT true, as focusing on relevant costs is crucial in making informed decisions.

Step-by-step explanation:

When analyzing two alternatives, the statement that is NOT true is: 'Isolating relevant costs gives a different answer than using all costs'. Focusing solely on relevant costs is indeed the differential cost approach.

Relevant costs are the costs that will be affected as a result of the decision-making process, and they are crucial in evaluating different options. Irrelevant costs, on the other hand, are costs that will not be influenced by the decision and thus should not be considered in the decision-making process.

Including these can lead to confusion and distract from the critical information required for making a well-informed decision.The decision-making process benefits from a cost/benefit analysis, which involves comparing what you will sacrifice (costs) and what you will gain (benefits).

Marginal analysis, a part of this process, helps determine whether the extra cost of adding one more unit (marginal cost) is justified by the extra benefit that comes with it (marginal benefit). Understanding these concepts is essential in making efficient economic decisions as it provides insights that lead to resource optimization.