Select and "X" in the column that corresponds to the cost classification for each of the following scenarios. Some items may fit in more than one column. Avoidable Unavoidable Sunk Common Cost Cost Cost Fixed Cost Original cost of factory machinery Direct material Depreciation on corporate office furniture Salary of employees who will be terminated if product is outsourced Cost of item previously made in factory, but now purchased from supplier Depreciation on factory equipment Salary of supervisor who will be moved to another production line if product is eliminated Cost of nonrefundable airline ticket purchased last week Cost to delivery products to customers Direct labor
Select and “X” in the column that corresponds to the cost classification for each of the following scenarios. Some items may fit in more than one column.
Sunk cost: In accounting and business, a sunk cost is a cost that has already been incurred and that cannot be recovered. Sunk costs are viewed as bygone expenses in economic decision-making, and they are not taken into account when determining whether or not to continue an investment project.
Avoidable cost: The term "avoidable cost" refers to an expenditure that would not be incurred if a certain action were not carried out. Unlike most fixed expenses, which must be paid regardless of how active a company is, avoidable costs are mostly variable costs that may be eliminated from a corporate operation. In contrast, most fixed costs must be paid regardless of how active a firm is.
Unavoidable cost: An unavoidable expense is a cost for which there is a definite commitment to pay in the near term and which cannot be avoided. Since the promise has been made, it will not be feasible to defer payment of the cost until the commitment time has expired. This sort of expenditure is not taken into consideration while making short-term operational choices.
Common fixed cost: The following are examples of fixed costs: rental lease or mortgage payments, salary and insurance premiums; property taxes; interest expenditures; depreciation; and some utilities.
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