Relevant Information

Question 1

Name a function of ManAcc?

Answer 1

To provide management with relevant information based on good business decisions which should be made.

Question 2

What is the end result for making decisions?

Answer 2

The end result should lead to an advantage/disadvantages (determined based on financial and non-financial factors) for the business.

Question 3

What are the types of decisions?

Answer 3

1. Accept / Reject

2. Ranking

Question 4

Accept/ Reject decisions are?

Answer 4

are made on the merits of a particular opportunity under consideration, without the need to compare that opportunity to other available opportunities

Question 5

Ranking decisions?

Answer 5

• Choices between 1/2 competing opportunities

- involve scarce resource as they are not enough resources to explore all available opportunities

Question 6

What is relevant cost?

Answer 6

Costs appropriate to a specific management decision. These are represented by future cash flows whose magnitude will vary depending upon the outcome of the management decision made.’

Question 7

Relevant costing

Answer 7

-Only takes note of costs affected by that decision

Question 8

e.g. of decisions

Answer 8

• outsourcing (make/buy) decision
• product mixing decision
• special pricing decisions
• Discontinuation decisions

Question 9

Non relevant sunk costs and revenues

Answer 9

Sunk costs: cost that has been irreversibly incurred or committed.
Committed cost: Future cash flow that will be incurred anyway, whatever decision is taken now about alternative opportunities.
Notional costs
Historical costs
Non-relevant variable costs

Question 10

When is relevant cost used?

Answer 10

They are used for decision-making purposes only. They are only required for costs that will be affected by the decision made.

Question 11

What sort of decisions does relevant costing include?

Answer 11

• Special pricing decisions.
• Product mix decisions
• Decisions on the replacement of equipment.
• Outsourcing (make/buy) decisions
• Discontinuation decisions

Question 12

Definition of relevant costing?

Answer 12

Costs appropriate to a specific management decision. These are represented by future cash flows whose magnitude will vary depending upon the outcome of the management decision made.

Question 13

Relevant costs can be ?

Answer 13

• Future costs
• Opportunity costs
• Incremental costs
• cash flows
• Avoidable costs

Question 14

Incremental costs

Answer 14

-Costs that differ between 2 alternatives.

Question 15

Avoidable costs

Answer 15

Costs that could have been avoided if a sector of business or an activity discontinued.

Question 16

Opportunity costs

Answer 16

-A benefit sacrificed by choosing one opportunity rather than the next best alternative.