relevant costs for decision-making

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1、RelevantCostsforDecision-makingWhenyouhavecompletedthesenotesyoushouldbeableto:·explaintheimportanceofrelevantcostsindecisionmaking·identifyrelevantandnon-relevantcostsinvariousdecisionmakingsituation·evaluatedecisionsinvolvingrelevantandnon-relevantcosts.Re

2、levantcostsanddecisionmakingRelevanceisoneofthekeycharacteristicsofgoodmanagementaccountinginformation.Thismeansthatmanagementaccountinginformationproducedforeachmanagermustrelatetothedecisionswhichhe/shewillhavetomake.‘Relevantcosts’arethecoststhatmeetthisr

3、equirementofgoodmanagementaccountinginformation.TheCharteredInstituteofManagementAccountingdefinesrelevantcostsas:‘thecostsappropriatetoaspecificmanagementdecision’Thisdefinitioncouldberestatedas‘theamountbywhichcostsincreaseandbenefitsdecreaseasadirectresul

4、tofaspecificmanagementdecision’.Relevantbenefitsare‘theamountsbywhichcostsdecreaseandbenefitsincreaseasadirectresultofaspecificmanagementdecision’.Beforethemanagementofanenterprisecanmakeaninformeddecisiononanymatter,theyneedtoincorporatealloftherelevantcost

5、swhichapplytothespecificdecisionathandintheirdecisionmakingprocess.Toincludeanynon-relevantcostsortoexcludeanyrelevantcostswillresultinmanagementbasingtheirdecisiononmisleadinginformationandultimatelytopoordecisionsbeingtaken.Whilethetopicsexaminedinthesenot

6、esdealexclusivelywithrelevantandnon-relevantcosts,theideasraisedanddiscussedapplywithequalforcetotheimportanceandidentificationoftherelevantandnon-relevant’benefits’ofvariousdecisions.Relevantcostsandbenefitsonlydealwiththequantitativeaspectsofdecisions.Theq

7、ualitativeaspectsofdecisionsareofequalimportancetothequantitativeandnodecisionshouldbemadeinpracticewithoutfullconsiderationbeinggiventobothaspects.Identifyingrelevantandnon-relevantcostsTheidentificationofrelevantandnon-relevantcostsinvariousdecision-making

8、situationsisbasedprimarilyoncommonsenseandtheknowledgeofthedecisionmakeroftheareainwhichthedecisionisbeingmade.Armedwiththesetwotoolsyoushouldbeabletosiftthroughalltheinformationthatisavailablei