Question: What Are The Features Of Relevant Cost?

What is relevant cost example?

Relevant cost is a managerial accounting term that describes avoidable costs that are incurred only when making specific business decisions.

As an example, relevant cost is used to determine whether to sell or keep a business unit..

Are avoidable costs relevant?

An avoidable cost is one that can be eliminated completely depending on the alternative we pick. An avoidable cost is a relevant cost, while unavoidable costs are irrelevant costs.

What exactly is a cost driver?

What is a Cost Driver? A cost driver is the direct cause of a cost. Fixed costs remain unchanged and its effect is on the total cost incurred. For example, if you are to determine the amount of electricity consumed in a particular period, the number of units consumed determines the total bill for electricity.

What is the difference between relevant and sunk costs?

A sunk cost is a cost that has been incurred and cannot be recovered. … When a manager is considering a particular decision, relevant costs are the costs that are incurred if the decision is made and irrelevant costs are the costs that are incurred whether or not the decision is made.

Why is relevant range important?

Why is relevant range important? Relevant range is important because if you make the assumption that all of your costs will remain constant, whether they are fixed or variable, you may make errors on your projections.

How do we determine if a cost or revenue is relevant?

In cost accounting, relevant means that you consider future revenue and expenses. Also, relevant means that a cost or revenue will change, depending on a decision you make. Past costs are water under the bridge, and if the costs or revenue remain the same no matter what you decide, they aren’t relevant.

Can fixed costs be relevant?

Generally speaking, variable costs are more relevant to production decisions than fixed costs. … Therefore, in most straightforward instances, fixed costs are not relevant for production decision, and incremental costs, or variable costs, are relevant for these decisions.

Is tax a relevant cost?

A current or future cost that will differ among alternatives. For example, if a company is deciding whether to expand its sales territory, the real estate tax and depreciation on the company’s headquarters building is not relevant.

Are salaries relevant costs?

Relevant costs are those costs that will make a difference in a decision. Relevant costs are future costs that will differ among alternatives. … The salaries of the product line managers and other employees whose salaries will be eliminated are relevant to the decision.

What are the two properties of a relevant cost?

Two important characteristic features of relevant costs are ‘Occurrence in Future’ and ‘Different for Different Alternatives’. This does not mean that all costs which occur in future are not relevant cost.

What is relevant and irrelevant cost?

Relevant costs are costs that will be affected by a managerial decision. Irrelevant costs are those that will not change in the future when you make one decision versus another. Examples of irrelevant costs are sunk costs, committed costs, or overheads as these cannot be avoided.

Are opportunity costs relevant costs?

An opportunity cost is a hypothetical cost incurred by selecting one alternative over the next best available alternative. Opportunity costs are relevant in business decision making. In addition, companies commonly use them when evaluating corporate projects.

How do you determine relevant costs?

The current purchase price of $22 will be used to determine the relevant cost of Material C as this will be the value of each unit purchased. The original purchase price of $20 is a sunk cost and so is not relevant. Therefore the relevant cost of Material C for the new product is (120 units x $22) = $2,640.

Are all future costs relevant?

Relevant costs are those costs that will make a difference in a decision. Future costs are relevant in decision making if’ the decision will affect their amounts. Relevant costing attempts to determine the objective cost of a business decision.

What is the meaning of relevant?

relevant, germane, material, pertinent, apposite, applicable, apropos mean relating to or bearing upon the matter in hand. relevant implies a traceable, significant, logical connection. found material relevant to her case germane may additionally imply a fitness for or appropriateness to the situation or occasion.