D. Cost  
 
 
 
1. cost:              any negative impacts associated with a decision
                      (e.g., adverse media coverage is a cost).
 
2. opportunity cost:  the value of a resource (in dollars) 
                      in terms of its alternative use
 
 
3. sunk costs:        spending that cannot be recovered
                      (a previous cost that is not 
                      affected by a current decision)
 
 
4. marginal cost:     the change in cost relative to
                      a designated unit of output
                      For decision-making, costs should be analyzed at the margin.
 
5. incremental        the change in costs relative to 
   costs:             a designated unit of economic activity
 
 
6. average cost:      total costs divided by total units
 
 
7. cost               a search for the best ratio of    
   effectiveness      benefits to costs                 
   analysis: 
 
 
8. relevant           the costs considered relevant to 
   costs:             a particular business decision
                      (e.g., fixed, variable, marginal)
 
 
9. fixed costs:       costs that do not change 
                      with the level of output.
 
 
10. variable          costs that change 
    costs:            with the level of output. 
 
11. net benefits: 
 

total benefits minus total costs.
Limited funds should be allocated among programs on the basis of 
marginal net benefits.

 
12. discount rate:
 

The rate at which future dollars are lowered to be expressed as present dollars.  
The future benefits of a program should be adjusted by discount rates.

 
13. internal rate of return: 
 

The discount rate when net benefits of a program equal zero
 

14. Cost-effectiveness:  
 

Selecting the cheapest option that can
achieve organizational objectives. 
 
Cost effectiveness recognizes that you cannot minimize costs and 
maximize benefits at the same time.  Cost-effective is a relative term, 
because it is relative to your objectives.  Cost effectiveness is not 
always the cheapest option, because the cheapest 
option may not achieve organizational goals.
 

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