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Reject opportunity, cost drivers, opportunity costs

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Describe two long-run effects that may lead to managers' rejecting opportunities to cut prices and obtain increases in short-run profits.

What are some advantages of using cost drivers effectively? Can you apply too many cost drivers?

Accountants do not ordinarily record opportunity costs in the formal accounting records. Why?

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Solution Summary

Your tutorial is 434 words and gives examples for why cutting prices may hurt and why too many cost drivers is a bad idea. Effective uses for cost drivers are given.

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Describe two long-run effects that may lead to managers' rejecting opportunities to cut prices and obtain increases in short-run profits.

Cutting prices in the short run may jeopardize long run market pricing, making it harder to obtain margins in the future. So, while cutting prices may drive current activity, those customers may wait for another "sale" to buy and refuse to participate at normal pricing levels.

Second, cutting prices may increase sales but not improve profits. That is, it may increase revenues by boosting volume at a lower sales price per unit but the lower margins per unit may actually make gross profits about the same. Imagine selling a product ...

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Carol Sargent, PhD
Education
  • BSc, University of Virginia
  • MSc, University of Virginia
  • PhD, Georgia State University
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