Question

Select either true or false for the following statements. 1. Relevant costs are also known as unavoidable costs 2. Incremental costs are also known as differential costs 3. An out-of-pocket cost requires a current and/or future outlay of cash. 4. An opportunity cost is the potential benefit that is lost by taking a specific action when two or more alternative choices are available 5. A sunk cost will change with a future course of action.

Answer 1

1. Relevant costs are also known as unavoidable costs - False.

Relevant costs are in fact, avoidable cost that only emerge in specific business decisions.

2. Incremental costs are also known as differential costs - False

Incremental costs are costs that are incurred when an additional unit of output is produced. Differential costs ocurr when a particular product is made instead of another.

3. An out-of-pocket cost requires a current and/or future outlay of cash. - True

An out-of-pocket cost or expense is a direct payment of money, in other words, an outlay of cash.

4. An opportunity cost is the potential benefit that is lost by taking a specific action when two or more alternative choices are available - True

An opportunity cost can also be defined as what is given up to obtain something.

5. A sunk cost will change with a future course of action. - False

Sunk costs are costs incurred in the past, that cannot be recovered, or modified.