Relevant Costing

Question 1

Incremental cost

Answer 1

An incremental cost is an additional cost that will occur if a particular decision is taken. Provided that this additional cost is a cash flow, an incremental cost is a relevant cost

Question 2

Differen tial cost

Answer 2

A differential cost is the amount by which future costs will vary, depending on which course of action is taken. A differential cost is therefore an amount by which future costs will be higher or lower, if a particular course of action is chosen . Provided that this additional cost is a cash flow, a differential cost is a relevant cost.

Question 3

avoidable cost

Answer 3

An avoidable cost is a cost that could be saved (avoided), depending whether or not a particular decision is taken.

Question 4

Unavoidable costs

Answer 4

An unavoidab le cost is a cost that will be incurred anyway.
Avoidable costs are relevant costs. Unavoidable costs are not relevant to a decision

Question 5

Committed costs

Answer 5

Committed costs are a category of unavoidable costs. A committed cost is a cost that a company has already committed to or an obligation already made, that it cannot avoid by any means. Committed costs are not relevant costs for decision making.

Question 6

Sunk costs

Answer 6

Sunk costs are costs that have already been incurred (historical costs) or costs that have alr eady been committed by an earlier decision. Sunk costs must be ignored for the purpose of evaluating a decision, and cannot be relevant costs.

Question 6

Opportunity costs

Answer 6

Relevant costs can also be measured as an opport unity cost. An opportunity cost is a benefit that will be lost by taking one course of action.