9. Relevant Costing

Question 1

What are relevant costs?

Answer 1

Costs appropriate to a specific management decision, which must be future incremental cash flows

Question 2

What types of cost are not relevant?

Answer 2

Sunk costs, committed costs, non cash flow, allocated costs

Question 3

What is the deprival value of a non current asset?

Answer 3

The lower of the replacement cost, and the higher of the sale price and economic value to the company

Question 4

What is opportunity cost?

Answer 4

The benefit foregone by choosing one course of action instead of the next best alternative

Question 5

Are relevant costs used for internal decision making or external reporting?

Answer 5

Internal decision making

Question 6

What other things need to be considered when making decisions using relevant costs?

Answer 6

1. Impact on staff
2. How existing customers will react
3. Impact on suppliers
4. Do you have the resources
5. Response of competitions
6. Political and legal factors