Relevant Costs Used in Incremental Analysis

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Relevant Costs Used in Incremental Analysis

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Incremental analysis involves looking at make/buy, special order, discontinuing a product or segment of a business, and to sell or process further business decisions. When making this analysis, we are only concerned with the costs that will change if one alternative is selected over another. Any costs that do not change if either alternative is selected are ignored when making this type of decision. For example, a sunk cost is a cost that has already been incurred and will be ignored. Also, when considering two alternative costs that are common to both alternatives will be ignored.

This discussion addresses the following module outcome:

  • MO1: Apply incremental analysis to short-term decision-making. (CO1)
  • MO2: Distinguish relevant, irrelevant costs. and opportunity costs. (CO1)

Please review all reading and viewings prior to starting your discussions and homework.

Next, address the following question in your initial post:

  • How are relevant costs used in incremental analysis? Be sure to distinguish relevant, irrelevant costs, and opportunity costs.

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