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r which the costs are wanted and to consider only those costs that are affected by the decision in question. Such terms are termed as RELEVANT COSTS. If fixed costs remain the same, then fixed cost will be treated as irrelevant cost for decision making. Marginally cost or the variable cots vary between alternatives and only such costs are referred to as relevant cost under the circumstances.

Example: should cheaper quality of material be used or not to reduce the costs of material?

The factory managersa€? salary, insurance, depreciation, plant repairs and maintenance may be irrelevant cost since these will not be changed by the decisions made. The management can disregard these for purposes of comparison.

Identifying relevant and non-relevant costs

The identification of relevant and non-relevant costs in various decision-making situations is based primarily on common sense and the knowledge of the decision maker of the area in which the decision is being making. Armed with these two tools you should be able to sift through all the information that is available in respect of any decision and extract those costs (and benefits), which are appropriate to the decision at hand.

In identifying relevant costs for various decisions, you may find that some costs not included in the normal accounting records of an enterprise are relevant and some costs included in such records are non-relevant. It is important that you and relevant costs for decision-making, and while the latter may be recorded in the former this is not always the case.

Accounting records are used to record the incidence of actual costs and revenues as they arise. Decisions, on the other hand, are based only on the relevant costs and benefits appropriate to each decision while the decision is being made. This point is particularly appropriate when you come to examine opportunity costs and sunk costs that are dealt with below.

In practice, you may also find that the information presented in respect of a decision does not include all the relevant costs appropriate to the decision but the identification of this omission is very difficult unless you are familiar with the area in which the decision is being made.

机会成本——Opportunity costs

Opportunity cost refers to the advantage, in measurable terms, which has been foregone on accounts of not using the facilities in the manner originally planned. For example, if an old building is proposed to be utilized for housing a new project plant, the likely revenue which the building could fetch if rented out is the opportunity cost which should be taken into account while evaluating the profitability of project.

Opportunity cost is the net benefit that would have been received from an asset if put to its next best use. The concept of opportunity cost is implicit in any comparison of alternatives. The merit of any course of action is its relative merits, the difference between one action and another.

Example: a manufacturer confronted with a problem of selecting any one of the two following alternatives:

Selling a semi-finished product of Rs.2 per unit

Introducing it into a further process to make more defined and valuable.

Alternative b will proof to be remunerated only when after paying the 本论文由英语论文网提供整理，提供论文代写，英语论文代写，代写论文，代写英语论文，代写留学生论文，代写英文论文，留学生论文代写相关核心关键词搜索。