Marginal analysis

Free IMA CMA Part 2 (Strategic Financial Management) lesson in Business Decision Analysis. 19 min read, ~2,844 words.

Relevant costs are future cash flows that differ between alternatives. Sunk costs (already-paid R&D, training) and unavoidable allocated overhead are irrelevant. Opportunity cost equals contribution margin forgone from the next-best use of a scarce resource, added to the cost of the alternative that consumes it. Special order with idle capacity...