Required information

We will discuss cost classifications used in making decisions: differential costs, sunk costs and opportunity costs. For

purposes of making decisions, the concepts of differential cost and revenue, sunk cost, and opportunity cost are vitally

important. Differential costs and revenues are the future costs and revenues that differ between alternatives. Sunk cost is

a cost that occurred in the past and cannot be altered. Opportunity cost is the benefit forgone when one alternative is

selected over another. Differential costs and opportunity costs are always relevant and should be carefully considered in

decisions. Sunk costs are always irrelevant in decisions and should be ignored.

Opportunit Cost

Opportunity Cost $=$ Investment Income