Relevant costs are future costs that differ across the alternatives.
If the future cost is same for all alternatives, then there will not be any effect on decision. Such costs are called as irrelevant costs. By considering these costs decisions making will not impact.
Yes, direct materials never irrelevant because, they are future costs and that differ across the alternatives.
For Example, A company that makes engines for commercial ships. A supplier has approached the company and offered to sell one component for manufacturing nacelles, for what appears to be an attractive price. Company faces make or buy decision in this case. Here make or buy are two alternatives.
In this case direct Materials to make nacelles are $ 300,000 is relevant cost , because it is future cost differs across the alternatives.
From the above example it is clear that relevant costs are affects the decision making among the alternatives.
Fixed costs that are relevant costs in sometimes, for example, in the above case if company has to incur additional expense to purchase spare parts that will help to manufacture the nacelles, even though it is capitalized and in the nature of fixed , it is relevant cost and it should be considered in decision making.
Relevant costs are future costs that differ across alternatives. If the future cost is same for all alternatives, then there will not be any effect on decision. Such cost is called as irrelevant cost.
1. She spent 11,200 on Le -Baron, these costs are Sunk costs which can't be considered for decision making a nd those are irrelevant does not affect across the alternatives.
2. In order to restore the Le Baron , following Future costs are associated
If she go for Honda CR-V, then
In order to restore the le- Baron could incur costs $ 3,110 which is lower than go for Honda CR-V $ 5,500.
Hence, it is advised her to restore the Le- baron instead of go for Honda CR-V.
Tactical decision making consists of choosing among the alternatives with an immediate or limited end in view.
Tactical decision may belongs to short run that an "accepting of special order which is less than the normal selling price" or may belongs to long run that "the company considering making component rather the buying it from outside".
However the tactical decision should support overall objective even if immediate objective is short run or long run. A sound tactical decision achieves not only the limited objective but also serve a larger purpose.
The tactical decision process would be generally as:
1. Recognize and define the problem
2. Identify alternatives as possible solutions to the problem, and eliminate any un feasible alternatives
3. Identify the cost and benefits which associated with each feasible alternative. Eliminate the costs and benefits that are not relevant to the decision.
4. Compare the relevant costs and benefits for each alternative.
5. Asses qualitative factors
6. Select the alternative with the greatest overall benefit.
There is no answer for this question