Relevant costing

Question 1

What should all decisions be based on?

Answer 1

Relevant costing

Question 2

What is relevant costing?

Answer 2

Relevant costs and revenues are those cost and revenues that change as a direct result of the decision taken

They must be :
- Future (no sunk or historical costs)

• incremental (ignoring most fixed costs unless changed because of the decision and all committed costs)
• Cash flows (we ignore all accounting adjustments such as depreciation)