Assumptions for relevant costs

The key assumptions made in relevant costing are:

• The cost behavior is recognized.
• The amount of fixed costs, unit variable costs, selling prices and sales demand are known with certainty.
• The objective of the decision maker in the short-term is to maximize satisfaction which can be defined as maximization of short-term profit.
• The information on which the decision is based is complete and reliable.

There are various types of decisions that can be considered in this section, Illustrations comprise:

a. Make or Buy decisions
b. Shut down problems
c. Extra shift decisions
d. Joint cost decisions