Relevant Costs & Revenues for Decision Making

Question 1

How do managers make decisions between multiple options?

Answer 1

Require relevant costs and relevant revenue info to compare.
Requires special consideration.
LR, all costs are variable so all relevant.
SR, look at marginal/variable costing and revenue principles.

Question 2

Examples of Irrelevant Costs:

Answer 2

• Sunk costs, costs incurred from previous decisions
• Committed/Locked-in costs, costs that not yet incurred but will be in future due to previous decisions
• Unavoidable costs – incurrence of these cannot be saved
• Existing fixed costs
• Depreciation

Question 3

What are the Different Types of Decisions?

Answer 3

• Special orders and selling pricing
• Product mix
• Replacement of equipment
• Make or buy
• Discontinuation

Question 4

What is Special Order Selling Price?

Answer 4

Goods/services outside normal market, one-time-only order. Sold below current price company sells at.

Question 5

What is Product Mix?

Answer 5

Total no. product lines & individual products/services offered by company.
Issues when S & D are not in equilibrium

Question 6

What is Make or Buy Decision?

Answer 6

Beneficial for organisation to provide product/service internally or from outside supplier (outsourcing).