What is a relevant cost, and how does one determine relevance?

Question:

What is a relevant cost, and how does one determine relevance?

Relevant Cost:

Relevant cost is a cost that are relevant in decision making. These costs can not be ignored. The relevant cost helps in taking the decisions among the available alternatives. It focuses on the benefits for the company and therefore selects those alternatives which will be more profitable for the company.

Answer and Explanation:

Relevant cost:

In managerial accounting, such cost is used to eliminate the irrelevant information or data from the collection of information made by the management. The irrelevant information is eliminated because it becomes the huddle in decision making and makes the task of decision making more complicated. Relevant cost is the avoidable cost because it occurs only when specific business decisions are taken.

One can determine the relevant cost by identifying either the cost is avoidable or not. The relevant cost is eliminated by choosing another alternative, and the relevant cost is a cost that can be avoidable. The decision can eliminate the relevant cost.


Learn more about this topic:

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Relevant Costs in Eliminating a Product or Segment

from Accounting 301: Applied Managerial Accounting

Chapter 9 / Lesson 12
1.3K

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