COST ACCOUNTING
INFORMATION FOR DECISION MAKING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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What is the time frame for achieving results?
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What difference will an action make?
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Who will be responsible?
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How much will it cost?
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Detailed explanation-1: -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-2: -Differential revenues and costs. (also called relevant revenues and costs or incremental revenues and costs) represent the difference in revenues and costs among alternative courses of action. Analyzing this difference is called differential analysis. (or incremental analysis).
Detailed explanation-3: -Therefore, the relevance of cost is determined by its potential effect(s) on the decision. A cost may be relevant in one decision but is irrelevant in another.
Detailed explanation-4: -Relevant costs and revenues are those future costs and revenues that will be changed by decision while irrelevant costs and revenues are those costs and revenues that will remain unchanged irrespective of the decision made.