Describe the benefits of operating decisions - relevant cost, Managerial Accounting

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Relevant costs and benefits for operating decisions:

In operating decisions, concentration is on best use of existing capacity. Incremental analysis based on differential cost and differential revenue is based directly on the concept of relevant cost and benefit. The term opportunity cost also springs from the thought underlying this concept.

Relevance of normal and abnormal cost:

The terms normal cost and abnormal cost, normal working conditions and abnormal cost cannot be treated alike. Similarly, cost accounting strategy for normal conditions will not hold good for abnormal conditions. The term normal stands for anything (cost of circumstances) which is in agreement with what is in agreement with what is representative, usual or regular. The term abnormal stands for anything (cost or circumstances) which is in agreement which is different from what is normal, ordinary or expected. Different cost accounting treatments are laid down for normal cost and abnormal cost.  

 


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