Accounting response to classmate

In about 150 to 250 words respond to a classmate with reference and citation on this week topic.

Here is what a classmate wrote
to our topic this week in accounting I need this response tonight within a couple of hours please.

G wrote

   

Relevant decision-making depends on the balance between Costs and Benefits. It is a defining attribute of high performance organizations. (Michel 2007) Managers should always keep this concept in mind in order to focus on more relevant questions that arise during business meetings and transactions. The ability to identify cost and benefits is referred to as differential analysis. The cost and benefits of one decision to an alternative is what makes a decision over another beneficial. It is important to note that unavoidable costs are future costs that do not vary based on the alternative decision.

 

If the cost and benefit do not vary as much should be ignored and avoided. When the cost and benefits becomes more relevant over other alternatives, it is kept. However keep in mind that sunk costs (Gschwandtner 2006) are cost that’s been invested or implemented beforehand in decision-making. This is unavoidable and can be detrimental in decision-making. Sunk costs are irrelevant and different costs will be relevant for different purposes and each should be analyzed in depth before coming to a conclusion. Therefore sunk costs when included into decision rule can result in future investment potentials whereas some would argue it’s a value that should never be incorporated into Net present value since it would skew interpretation and further values. (Shrader 2011)

 

A great example is the cost of investment between marketing and advertisement campaigns. Comparison between these values can be applied to all forms of business. The goal here is simple, and considering a difference which can result in increase in net income versus loss. This complete formula is simply differential analysis.

 

Since we understand what is relevant costs in difference from all costs, we should isolate irrelevant costs in order to pinpoint which sector can result in sunk costs or damaging over time. This ability to differential not only focuses on positive outlook but also helps understand where the organization is weak in and what can be done to save money.

 

Reference:

 

Michel, L. (2007). Understanding decision making in organizations to focus its practices where it matters. Measuring Business Excellence, 11(1), 33-45.

 

Gschwandtner, A., & Lambson, V. E. (2006). SUNK COSTS, PROFIT VARIABILITY, AND TURNOVER. Economic Inquiry, 44(2), 367-373.

 

Shrader, M. J., & Hickman, K. A. (2011). On the relevancy of future sunk costs. The Journal of Applied Business and Economics,12(1), 34-37.