Relevant Cost
Contents
Understanding Relevant Cost in Managerial Accounting
Discover the significance of relevant cost, a crucial concept in managerial accounting, used to aid decision-making by focusing solely on avoidable costs associated with specific business choices. Gain insights into relevant cost decisions through examples and understand its distinction from sunk costs.
Unraveling Relevant Cost
Definition and Importance
Explore the definition of relevant cost and its importance in managerial decision-making processes. Understand how relevant cost helps streamline decision-making by filtering out irrelevant data.
Exploring Examples
Case Study: Last-Minute Flight Ticket
Analyze a practical example involving last-minute flight ticket pricing to grasp the application of relevant cost. Understand how airlines consider only incremental costs when determining ticket prices for rushed passengers.
Types of Relevant Cost Decisions
Evaluating Business Unit Operations
Delve into the decision-making process regarding the continuation or closure of business units based on relevant costs. Learn how managers assess the costs and benefits associated with keeping or shutting down specific operations.
Make vs. Buy Analysis
Understand the considerations involved in make vs. buy decisions for component parts. Explore how relevant costs play a crucial role in determining whether to produce components in-house or outsource them to external vendors.
Special Order Pricing
Examine the factors influencing pricing decisions for special orders. Learn how managers factor in variable costs while disregarding fixed costs to assess the profitability of fulfilling special customer requests.