Cost Theory in Economics A central economic concept is that getting something requires giving up something else. For example‚ earning more money may require working more hours‚ which costs more leisure time. Economists use cost theory to provide a framework for understanding how individuals and firms allocate resources in such a way that keeps costs low and benefits high. 1. Function * Economists view costs as what an individual or firm must give up to get something else. Opening a
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Cost estimation is a fundamental aspect of managerial/cost accounting (Datar et al. 2008; Eldenburg and Wolcott 2005). The cost predictions are used in each of the management functions. for example used to predict costs so that management can determine the desirability of alternative options and to budget expenditures‚ profits‚ and cash flows. The objective is to support students in learning how to apply regression analyses to understand cost behavior and forecast future costs using real data from
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Chapter 4: Costs and Cost Minimization Multiple Choice 1. Suppose you are a star basketball player at a major university in your sophomore year. You are sought after by several NBA teams. Which of the following choices best characterizes your opportunity cost if you choose to drop out of college and enter the NBA? a) The value of your college scholarship that you have given up. b) The skills that two more years of playing at your college would have given you along with their additional value
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than the cost of capital. The cost of capital is the rate of return that capital could be expected to earn in an alternative investment of equivalent risk. If a project is of similar risk to a company’s average business activities it is reasonable to use the company’s average cost of capital as a basis for the evaluation. A company’s securities typically include both debt and equity‚ one must therefore calculate both the cost of debt and the cost of equity to determine a company’s cost of capital
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Cost Benefit Analysis A cost benefit analysis is done to determine how well‚ or how poorly‚ a planned action will turn out. Although a cost benefit analysis can be used for almost anything‚ it is most commonly done on financial questions. Since the cost benefit analysis relies on the addition of positive factors and the subtraction of negative ones to determine a net result‚ it is also known as running the numbers. A cost benefit analysis finds‚ quantifies‚ and adds all the positive factors. These
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The historical cost accounting is an accounting technique that values an asset for balance sheet purposes at the price paid for the asset at the time of its acquisition. It is usually used in combination with other measurement bases. For example‚ inventories are usually carried at the lower of cost and net realizable value‚ on the other hand marketable securities are usually carried at market value‚ and entities prefer to carry pension liabilities at their present value. The main advantage of using
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Cost/Benefit Analysis Evaluating Quantitatively Whether to Follow a Course of Action You may have been intensely creative in generating solutions to a problem‚ and rigorous in your selection of the best one available. However‚ this solution may still not be worth implementing‚ as you may invest a lot of time and money in solving a problem that is not worthy of this effort. Cost Benefit Analysis or CBA is a relatively* simple and widely used technique for deciding whether to make a change. As its
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activities; c. Productive activities‚ such as finished goods transportation‚ storage‚ customer contact‚ order processing‚ etc. d. Sales activities to let customers understand and buying of goods‚ such as advertising‚ promotion‚ marketing agency costs‚ etc; e. Service activities‚ including training‚ repair‚ maintenance‚ components renewal etc‚ aiming at improving the added value of products. Auxiliary activities: a. Procurement activities‚ to refer to the purchase of used in enterprise value
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Opportunity Cost Lets start with a small introduction to the topic Opportunity Cost. Opportunity cost is the cost of any activity measured in terms of the value of the next best alternative forgone (that is not chosen). It is the sacrifice related to the second best choice available to someone‚ or group‚ who has picked among several mutually exclusive choices. The opportunity cost is also the "cost" (as a lost benefit) of the forgone products after making a choice. Opportunity cost is a
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Quiz 2 1) Cost-volume-profit analysis is used primarily by management: A) as a planning tool B) for control purposes C) to prepare external financial statements D) to attain accurate financial results Answer: A Diff: 1 Terms: cost-volume-profit (CVP) Objective: 1 AACSB: Communication 2) One of the first steps to take when using CVP analysis to help make decisions is: A) finding out where the total costs line intersects with the total revenues line on a graph. B) identifying which costs are variable
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