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    Relevant Costing

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    Siddiqua Kashif
    A relevant cost is a cost that changes due to a business decision. It is a future cost that is incremental and impacts cash flow. An irrelevant cost does not change due to a decision, such as a past or fixed cost. Examples of relevant costs include additional materials, labor costs, or lost opportunity costs from choosing one option over another.

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    Relevant Costing

    Uploaded by

    Siddiqua Kashif
    36 views4 pages
    A relevant cost is a cost that changes due to a business decision. It is a future cost that is incremental and impacts cash flow. An irrelevant cost does not change due to a decision, such as a past or fixed cost. Examples of relevant costs include additional materials, labor costs, or lost opportunity costs from choosing one option over another.

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    Relevant costing (1)

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    A relevant cost is a cost that changes due to a business decision. It is a future cost that is incremental and impacts cash flow. An irrelevant cost does not change due to a decision, such as a past or fixed cost. Examples of relevant costs include additional materials, labor costs, or lost opportunity costs from choosing one option over another.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    36 views4 pages

    Relevant Costing

    Uploaded by

    Siddiqua Kashif
    A relevant cost is a cost that changes due to a business decision. It is a future cost that is incremental and impacts cash flow. An irrelevant cost does not change due to a decision, such as a past or fixed cost. Examples of relevant costs include additional materials, labor costs, or lost opportunity costs from choosing one option over another.

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    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    of 4

    relevant cost

    A relevant cost is a cost of a decision.

    A cost that changes because of a business decision is a relevant cost. If the cost stays same before and after taking the
    decision then the cost is considered to be irrelevant.

    Fixed cost Before decision After decision Outcome Amount


    Rent 10000 10000 irrelevant 0
    Rent 10000 15000 relevant 5000

    Characteristics of relevant cost Costs that are irrelevant


    1) Past /sunk cost
    1) Future cost 2) Committed cost
    3) Depreciation (non- cash item)
    4) Centrally allocated overheads ( are not inc
    2) Incremental cost

    3) Cash flow

    4) opportunity cost
    (the best alternative that is forgone to take a decision)

    example:

    material A 6000
    material B 5000
    Material C 2950
    Material D 1500 SV 1200
    15450 loss of contribution 1500

    Push co.

    1) Lunch cost 0 As the cost has already been incurred in the past, hence it is a sunk cost and
    considered as irrelevant.

    2) Contract X 500 This is the only loss because of diverting engineers hours to Push co. contract. As th
    be completed after one week puch co job, therefore loss of contribution is not rele

    3) technical advisor 480 As overtime hours would be required for the job, hence relevant cost is calculated
    using overtime rate.
    4) Site inspector 0 The cost is directly paid by the client not by T Co.

    5) System trainer 125 Fixed salary is irrelevant because this must have to be paid regardless of the contra
    However, the trainer will charge 125 extra for training only if the contract is undert

    6) Telephone 2184 As the telephone handsets are regularly used by the business therefore its relevant
    cost is market price.

    7) Swipe 2 7600 Modifying Swipe 1 is cheaper comparing to buying swipe 2. Here the relevant cost
    includes the cost of modification as well as the loss of scrap value.

    8) Cable 1300 As the cable is frequently used by the business, therefore, the relevant cost is
    market price.

    total relevant cost 12189


    d after taking the

    - cash item)
    d overheads ( are not incremental)

    is a sunk cost and

    o Push co. contract. As the contract X would


    f contribution is not relevant.

    levant cost is calculated


    d regardless of the contract.
    y if the contract is undertaken.

    ess therefore its relevant

    . Here the relevant cost

    the relevant cost is

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