Quiz 11: Decision Making With a Strategic Emphasis

Business

Relevant costs: Relevant costs are the costs that differ with choices. The costs that are relevant for decision making of either to choose the option or to go for other option are known as relevant costs. Example for relevant costs: In the situation of replacement of machine, the relevant costs are as follows: The purchase cost of new machine. Installation cost of new machine. Disposal costs of old machine. Repairing cost of old machine. Note that, the purchase cost of old machine is not a relevant cost.

Relevant costs: Relevant costs are the costs that differ with choices. The costs that are relevant for decision making of either to choose the option or to go for other option are known as relevant costs. Decisions for which the relevant cost analysis model can be used effectively are: a) Make, lease or buy. b) Outsourcing. c) Keep or drop products or services. d) The special-order decision.

Relevant costs: Relevant costs are the costs that differ with choices. The costs that are relevant for decision making of either to choose the option or to go for other option are known as relevant costs. In the situation of processing a product further, the relevant cost is the incremental cost incurred for such additional processing of the product. Hence, the relevant cost is incremental cost.