文档介绍：2017/11/10
Accounting School
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Chapter18 Relevant costing and Decision-making
Priority = Medium
Exam Guidance
Relevant costing is one of the key syllabus topics for F2 and you must be able to explain the concept of relevant costing, calculate the relevant costs for materials and labor and calculate the relevant cost of an asset. You must also be able to identify the relevant costs involved in make or buy decisions, shut down decisions and one-off contracts.
2017/11/10
Accounting School
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2017/11/10
Accounting School
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1. The concept of relevance
Costs and benefits used in the financial analysis of a decision should be relevant to the decision to which they relate.
The existence of them will result in some difference.
2. Relevant costs
What is relevant cost?
A relevant cost is a future cash flow arising as a direct consequence of a decision.
Future costs
Management decision can only affect the future. In decision making, managers therefore require information about future costs and revenues.
Not all future costs should be taken in account, such mitted costs.
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Accounting School
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Cash flows
Costs or charges which do not reflect additional cash inflows or outflows(eg, depreciation, overheads absorbed, etc) should be ignored for the purpose of decision making.
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Accounting School
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Incremental costs
A relevant cost is one which arises as a direct consequence of a decision. Only costs which will differ under some or all of the available opportunities should be considered. Relevant costs are therefore incremental costs.
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Accounting School
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Examples of relevant costs
Avoidable costs
These are costs which would not be incurred if the activity to which they relate did not exist.
These are usually variable costs and directly attributable fixed costs.
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Accounting School
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Differential cost
This is the difference in total cost between alternatives.
Opportunity cost