1.5 Cost-Benefit Analysis

Cards (54)

  • The final decision in cost-benefit analysis is whether to proceed with the project.
  • What are direct costs in production?
    Expenses directly attributable to production
  • Indirect costs are also known as overhead costs.
  • Direct labor is an example of a direct cost.
  • Rent is a direct cost of producing goods.
    False
  • Match the cost category with an example:
    Direct Costs ↔️ Raw materials
    Indirect Costs ↔️ Rent
  • Steps in applying cost-benefit analysis
    1️⃣ Identify costs and benefits
    2️⃣ Quantify them in monetary terms
    3️⃣ Calculate total costs and benefits
    4️⃣ Compare totals
    5️⃣ Decide whether to proceed
  • Indirect benefits are challenging to quantify directly because they are often intangible gains.
  • Direct benefits are easier to measure than indirect benefits.
  • What is an example of a direct benefit?
    Reduced labor hours
  • What does quantifying costs and benefits involve in cost-benefit analysis?
    Assigning monetary terms
  • Indirect costs are challenging to measure and often require estimation.
  • How is net benefit calculated?
    Total Benefits - Total Costs
  • A net benefit of $7,500 means that the total benefits exceed the total costs by $7,500.
  • What does cost-benefit analysis compare to guide decision-making?
    Total costs and benefits
  • Steps in conducting cost-benefit analysis
    1️⃣ Identify costs and benefits
    2️⃣ Quantify them in monetary terms
    3️⃣ Calculate total costs and benefits
    4️⃣ Compare totals
    5️⃣ Decide to proceed if benefits exceed costs
  • One of the key steps in cost-benefit analysis is to quantify costs and benefits in monetary terms.
  • A project should proceed only if its benefits are greater than its costs.
  • What is the primary purpose of cost-benefit analysis?
    Evaluating advantages and disadvantages
  • Direct costs are expenses directly tied to the production of goods or services, while indirect costs support overall operations.
  • Match the cost category with its examples:
    Direct Costs ↔️ Raw materials, direct labor
    Indirect Costs ↔️ Rent, administrative salaries
  • What are indirect benefits in cost-benefit analysis?
    Intangible gains
  • Direct benefits are easier to quantify than indirect benefits.
  • In cost-benefit analysis, quantifying costs and benefits involves assigning monetary terms to each.
  • What tools are used for indirect cost quantification?
    Activity-based costing
  • What formula is used to calculate net benefit?
    Net Benefit=\text{Net Benefit} =Total Benefits−Total Costs \text{Total Benefits} - \text{Total Costs}
  • A positive net benefit indicates a project is worthwhile.
  • Match the limitation of cost-benefit analysis with its description:
    Subjective Valuation ↔️ Depends on evaluators' judgment
    Uncertainty ↔️ Future benefits and costs are unpredictable
    Non-Monetary Factors ↔️ Omits environmental or social impacts
  • What is one example of a non-monetary factor omitted in cost-benefit analysis?
    Environmental impacts
  • What is the primary goal of cost-benefit analysis?
    Determine project worth
  • Cost-benefit analysis involves comparing the total costs of a project with its expected benefits
  • Steps in cost-benefit analysis
    1️⃣ Identify costs and benefits
    2️⃣ Quantify each in monetary terms
    3️⃣ Calculate the total costs and benefits
    4️⃣ Compare the totals
    5️⃣ Decide whether to proceed
  • If the total benefits of a project exceed its total costs, the investment is worthwhile.
  • Cost-benefit analysis is used to evaluate the advantages and disadvantages
  • Key steps in cost-benefit analysis
    1️⃣ Identify costs and benefits
    2️⃣ Quantify each in monetary terms
    3️⃣ Calculate the total costs and benefits
    4️⃣ Compare the totals
    5️⃣ Decide whether to proceed
  • What is a direct benefit of investing in new software?
    Increased efficiency
  • Reduced errors is an example of a direct benefit
  • The final decision in cost-benefit analysis involves comparing the total costs with the total benefits.
  • What is the primary purpose of cost-benefit analysis?
    Evaluate project advantages
  • In cost-benefit analysis, all costs and benefits must be quantified in monetary terms