ECONOMICS

Detailed explanation-1: -Incremental costs are relevant in making short-term decisions or choosing between two alternatives, such as whether to accept a special order. If a reduced price is established for a special order, then it’s critical that the revenue received from the special order at least covers the incremental costs.

Detailed explanation-2: -What is a relevant cost? A relevant cost is one that we incur as a direct response to a particular decision. And likewise, a relevant revenue is the same, just instead of a cost, we incur a revenue as a result of a particular decision. This would normally be a management decision.

Detailed explanation-3: -Incremental analysis helps companies decide whether or not to accept a special order. This special order is typically lower than its normal selling price. Incremental analysis also assists with allocating limited resources to several product lines to ensure a scarce asset is used to maximum benefit.

Detailed explanation-4: -Explanation: Management accountants prepare revenue and cost data for managers and decision makers.