Variable cost: Variable costs are those costs which change based on the amount of goods produced or services rendered each period. An example of such cost would be purchasing materials from suppliers in order to make your product. The more products you make, the higher the variable cost will be for materials purchased during that period. Other examples would be supplies needed for production such as electricity, water, and fuel consumed when creating a product or providing a service.
Sunk Cost: A sunk cost is an expense that has already been incurred and cannot be recovered once it has been paid out by an organization. An example of this type of cost could include any investments made in research and development prior to launching your product or services into the market place. These costs have already been spent and cannot be recouped regardless of future success or failure; therefore, they are considered sunk costs since there is no way to get them back after they have been used up at this point in time.
Relevant Cost Decision: A relevant cost decision involves examining only those expenses necessary to complete a specific task within given constraints (i.e., budget). When making decisions related to relevant costs one needs to consider both financial factors as well as nonfinancial ones depending on what is being decided upon (i.e., price increase). Financial aspects may include looking at current expenses associated with producing said item (materials, labor) compared with potential revenue generated if prices were increased slightly per unit sold etc.. Nonfinancial aspects can involve customer loyalty considerations (would loyal customer base stick around if prices were raised too high?) as well as ethical considerations ie selling something below its worth just because it’s better than letting someone down who can’t afford it? Relevant costs should always take into account all variables involved so one can obtain an accurate picture before proceeding forward with any decisions made concerning pricing etc…
Opportunity Costs: Opportunity Costs refer to any lost opportunity resulting from choosing one option over another when deciding how best use resources available at hand (time/money). For instance; if one spends their limited budget on advertising instead spending money upgrading machinery used for production then opportunity lost due lack improved efficiency would represent an opportunity loss from decision not taken advantage new technology . Similarly when considering introducing new products/services there must careful consideration when determining whether resources invested justify anticipated return expect from undertaking endeavor due potential losses incurred if venture fails exceed profits made otherwise succeed . In conclusion understanding concept opportunitycosts essential ensuring most efficient allocation possible available resources ensure maximum profitability end result
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