Note re Relevant Cost Concept

Note re Relevant Cost Concept - ACCT2460 Supplementary...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
ACCT2460 Supplementary Notes re Chapter 7 Relevant or Incremental Costs and Special Decision Making Most businesses have to make what are called “non-routine” or special decisions on an ongoing basis. Examples: Accept v. Reject a Special Order at less than the normal selling price Keep v. Drop a product line, division, customer etc. Make inside v. Buy outside a part or component used by the business in its operations Keep v. replace a piece of equipment Sell a product as is v. process it further and then sell it These decisions typically involve two or more alternatives. The approach taken is to focus only on those costs and revenues that are relevant to the decision at hand. A cost (or revenue) is relevant to the decision if it meets the following criteria: 1. It relates to the future (i.e., the amount has not already been incurred and spent) 2. It differs among the various alterative choices. If a cost or revenue item meets both of these criteria, it is relevant to the decision and the amounts
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.
Ask a homework question - tutors are online