Differentiating sunk cost and out-of-pocket expense


Q1) Why does cost-volume-profit analysis focus on operating income instead of net income? Write down the suppositions which underlie cost-volume-profit analysis. Describe the significance of incremental costs and revenue when considering alternative courses of action. Why is it significant for management to understand cost-volume-profit relationships? Write down the effect of increase in activity on following items? Total variable costs and Variable costs per unit of activity. Write down the difference between sunk cost and out-of-pocket expense?

 

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Accounting Basics: Differentiating sunk cost and out-of-pocket expense
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