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RELEVANT COSTS FOR NON-ROUTINE DECISIONS
A relevant cost is a cost that is appropriate to a specific management decision. To be relevant, a cost should be:1) Future cost – A decision is usually about the future & management not what has already been done. A cost that has already been incurred is therefore irrelevant to any decision being made now e.g. costs already paid or costs committed by decisions made in the past.
2) Relevant costs are cash flows–It is assumed that decisions are taken which would maximize the satisfaction of the company owners & therefore such decisions must not be ignored. Such costs include depreciation, notional rent or notional interest or absorbed O/H.
3) Relevant costs arise as a direct consequence of making a decision. It must be an incremental cost i.e. the difference between the cost with the decision & the cost without the decision.
Quasar Computers are the first all optical notebooks and their profit largely affects the manipulations in cost, price, total revenue and quantity changes. The market analysis show
Ordering Costs These are incurred in getting purchased items into the company’s inventory or stores, and usually consist of clerical costs of: • Making the purchase demand.
Steps in Strategic Cost Analysis 1) Recognize the suitable value chain and allocate costs and assets to it. 2) Identify the cost drivers of each value activity and how they int
QUEUING THEORY When limited facilities fail/delays to satisfy demands made upon them, problems occur which generate queues or waiting lines. Illustrations are: • Customers
The Baumol Model in 1952 considers cash management complication as same to inventory management problem. For itself the firm attempts to minimize the total cost that is the sum of
Problem: Fancy Foods Ltd uses a standard costing system to control its material and labour costs. The standard costs for January 2007 were as follows. Standard Costs Materi
Analysis Various business decisions have recurrent themes: whether to the outsource production or to the support functions, what level of production and pricing to establish, w
INCOME STATEMENTS
Funds produced from operations, throughout an accounting period, raise working capital by an equivalent amount. The two major components of funds generated from operations are depr
h. Production orders that had cost 450,000 to complete according to their job cost sheets were shipped to customers during the month. These goods were sold on account at 50% above
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