Definitions

Question 1

Relevant costing

Answer 1

Relevant costs are cost that will be directly affected by a decision and to the extent that they are affected. This means only incremental, future and cash affecting costs are included.

Question 2

What makes a key variance?

Answer 2

1. Absolute in size (is it big?)
2. Large in relatively to (is it big compared to budget?)
3. Favourable or adverse (maybe bad better to stop first?)
4. Controllability (if you can’t control it, why bother investigating?)
5. Trends over times and against other things (always succeeding and then does badly-why?, is doing badly and others are doing well-why?)
6. Linkages (if one variance affects another quantity vs price)