relevant. All costs and benefits that do not differ are irrelevant. Costs that can be avoided are called avoidable costs. If they cannot be avoided, they are called unavoidable costs, which are ignored for decision making. A sunk cost is a cost that has already been incurred and cannot be avoided regardless of the decision. We will also discuss why a differential approach to decision making is preferred.

Decision Making: Six Key Concepts

Keep or Dr$$p Decisions

Sourcing Decisions

Special Order Decisions

Sell or Process Further Decisions

Knowledge Check $01$

What of the following forms the basis for a financial advantage when making a business decision?

Whether opportunity costs are present

Whether irrelevant costs and benefits arise

Whether the dfferential benefits exceed the differential costs

Whether alternatives exist