Relevant Cost Flashcards
What is Relevant Costs?
Costs relating to specific management decisions, represented by future, incremental cash flows that vary depending upon the outcome of the management decision made.
What is opportunity Cost?
The value of a benefit sacrificed when one course of action is chosen in preference to an alternative.
The opportunity cost is represented by the potential benefit foregone from the best-rejected course of action.
opportunity costs are relevant to decision-making and are likely to arise when there are a number of possible uses of a scarce resource.
What is avoidable Costs?
These are the specific costs of an activity or sector of a business that would be avoided if that activity or sector did not exist.
What is Sunk Costs?
Costs already incurred. They are not relevant to decision-making and are therefore ignored.
What is Committed costs?
Costs that have already been committed to and are irrelevant to the decision.
What is Notional Costs?
Are non-cash items or accountancy entries.
Is allocated fixed overhead costs a relevant cost?
No, allocated fixed overhead costs and general fixed overhead costs are not specific to a decision. Only Incremental avoidable fixed costs would be relevant.
What is Incremental costs?
costs which will increase as a direct result of a decision. Incremental costs are always relevant to a decision.
