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Accounting Sunk Costs and Balanced Scorecards

1. Your boss proclaims, "Not all future costs are relevant to business decisions, but costs are not relevant unless they occur in the future." Is your boss correct? Explain.

2. A balance scorecard's financial area focuses on how an organization adds value to shareholders. You currently work for a CPA firm and have two clients: a partnership and a church. Both organizations do not have shareholders. Even though a balanced scorecard is a vital tool for organizations, you do not consider the financial area relevant for your two clients. Is this a fair assessment? Does the type of organization impact the relevancy of a balanced scorecard's four components? Explain.

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Accounting

1. Your boss proclaims, "Not all future costs are relevant to business decisions, but costs are not relevant unless they occur in the future." Is your boss correct? Explain.

The statement made by your boss pertains to the bygones principle. According to this principle the decision maker should focus on extra costs that the firm will incur and decide if these are to be incurred against the benefits that will be derived from these costs. This is the reason why your boss says that costs are not relevant unless they are incurred in future. It emphasizes only the future costs in decision making.

In reality there are different types of costs considered like book value that is price paid for stock, the sunk cost or the past cost, the notional costs or the cost not represented as a real cash flow and fixed overheads. When you boss says not all future costs are relevant he means fixed overheads that will be incurred regardless of the business decision.

2. A balance scorecard's financial area focuses on how ...

Solution Summary

This posting solution discusses relevant costs for business decision making and how the balanced scorecard's financial area focuses on economic value added to shareholders. This solution is 690 words.

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