Relevant cost

1. What is a relevant cost?
2. How do you determine relevant cost?
3. What are the two types of relevant cost?
4. What are relevant and irrelevant costs?
5. What is conversion cost?
6. What is another term for relevant costs?
7. What is committed cost?
8. Which of these are relevant costs?
9. What are the characteristics of relevant cost?
10. Is depreciation a relevant cost?
11. Is salary a relevant or irrelevant cost?
12. What is relevant and irrelevant?
13. Is direct Labour a relevant cost?
14. Is insurance a relevant cost?
15. What is relevant in make or buy decision?

What is a relevant cost?

Relevant cost is a managerial accounting term that describes avoidable costs that are incurred only when making specific business decisions. The concept of relevant cost is used to eliminate unnecessary data that could complicate the decision-making process.

How do you determine relevant cost?

Something is an irrelevant cost if it cannot economically influence your decisions. If a decision can affect the cash flow, then the matter is relevant, and the costs of that decision are worth considering.

What are the two types of relevant cost?

The types of relevant costs are incremental costs, avoidable costs, opportunity costs, etc.; while the types of irrelevant costs are committed costs, sunk costs, non-cash expenses, overhead costs, etc.

What are relevant and irrelevant costs?

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.

What is conversion cost?

Conversion costs include direct labor and overhead expenses incurred as a result of the transformation of raw materials into finished products. Operations managers also use conversion costs to determine where there may be waste within the manufacturing process. ...

What is another term for relevant costs?

Definition: Relevant cost, also called differential cost, is a management accounting term decsribing costs that pertain to a particular decision. Relevant costs will vary based on the context of the decision, such as an omnichannel business analysis by a multi-platform retailer.

What is committed cost?

A committed cost is an investment that a business entity has already made and cannot recover by any means, as well as obligations already made that the business cannot get out of. One should be aware of which costs are committed costs when reviewing company expenditures for possible cutbacks or asset sales.

Which of these are relevant costs?

Differential, avoidable, and opportunity costs are considered relevant costs. Sunk and fixed overhead costs are irrelevant. Using examples to demonstrate these costs show us that which costs are included in what places depend on what decision is made and the specific situation.

What are the characteristics of 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. For a cost item to be relevant, both the conditions should be present.

Is depreciation a relevant cost?

Depreciation – this is not a relevant cost as it is not a cash flow. Sale proceeds – this is a relevant cost as it is a cash inflow which will occur in 10 years as a result of the decision to invest. Annual insurance cost – this is a relevant cost as this is an additional fixed cost caused by the decision to invest.

Is salary a relevant or irrelevant cost?

Examples of Irrelevant Costs

For example, the salary of an investor relations officer may be an irrelevant cost if a management decision relates to issuing a new product, since dealing with investors has nothing to do with that particular decision.

What is relevant and irrelevant?

Irrelevant means not related to the subject at hand. If a rock star becomes irrelevant, it means people are not relating––or even listening––to his music anymore. It isn't part of what people are thinking or talking about. The opposite is relevant, meaning related.

Is direct Labour a relevant cost?

The raw material price and the direct labor cost both make a difference, so both of these costs would be relevant as you looked at your options. ... Then the direct labor cost would be come in irrelevant cost.

Is insurance a relevant cost?

Irrelevant costs do not have any bearing when choosing over different alternatives. They do not make any difference and make no impact in making decisions. Irrelevant costs include sunk costs and unavoidable costs. ... Good examples include committed fixed costs such as insurance and current depreciation.

What is relevant in make or buy decision?

Make-or-buy decisions must be based on the relevant cost of each option. Relevant costs in make-or-buy decisions include all incremental cash flows. Any cost that does not change as a result of the decision should be ignored such as depreciation and indirect fixed costs.