Question

Label each of the following statements as either true (“T”) or false (“F”).

1. Relevant costs are also known as unavoidable costs.

2. Incremental costs are also known as differential costs.

3. An out-of-pocket cost requires a current and/or future outlay of cash.

4. An opportunity cost is the potential benefit that is lost by taking a specific action when two

or more alternative choices are available.

5. A sunk cost will change with a future course of action.

Short answer

1. False
2. True
3. True
4. True
5. False

Step-by-step solution

Definition of the Relevant Cost

Relevant cost refers to the future cost that is different between different alternatives and is relevant to the decision-making.

Detailed explanation

1. The given statement is completely false that the relevant cost is unavoidable because it is the avoidable cost that is different between different alternatives.
2. The given statement is completely true that the incremental cost is also known as the differential cost.
3. The given statement is completely true that the out-of-pocket cost requires a current and future outlay of cash because it is relevant to the current or future decisions.
4. The given statement is completely true that the opportunity cost is the benefit that the company loses by taking the specific action when two or more choices are available.
5. The given statement is completely false; the sunk cost will not change with the future course of action because it was the cost incurred earlier and cannot be recovered or changed.