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
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