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Chapter 11-Student - CHAPTER 11 Class Notes Relevant Costs...

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CHAPTER 11 Class Notes Relevant Costs for Decision Making Pages 508-526 Compiled by: Lei Wang, CPA Certain materials used with permission of Janice Fergusson or McGraw-Hill, Inc. Relevant Costs Every decision involves choosing from at least two alternatives. A relevant cost or benefit is a cost or benefit that differs, in total, between the alternatives. Any cost or benefit that does not differ between the alternatives is irrelevant and can be ignored . Relevant costs and benefits are also known as differential costs and benefits . Avoidable costs are those costs that can be eliminated in whole or in part by choosing one alternative over another. Avoidable costs are relevant costs. Two broad categories of costs are never relevant in decisions: 1. Sunk costs 2. Future costs that do not differ between alternatives. To make a decision: 1. Eliminate costs and benefits that do not differ, in total, between alternatives.
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