Which Of The Following Costs Would Be Relevant To A Make-or-buy Decision?

Which costs are relevant in make or buy decision?

Relevant costs in make-or-buy decisions include all incremental cash flows. Any cost that does not change as a result of the decision should be ignored such as depreciation and indirect fixed costs.

What are relevant costs for decision-making?

Relevant cost is a managerial accounting term that describes avoidable costs that are incurred only when making specific business decisions. The concept of relevant cost is used to eliminate unnecessary data that could complicate the decision-making process.

Which is relevant for decision-making?

Decision-making involves choosing between alternatives. A critical step in the decision-making process is identification of all the relevant information for each alternative. Relevant information is any information that would have an impact on the decision.

Which of the following is an example of sunk cost?

A sunk cost refers to a cost that has already occurred and has no potential for recovery in the future. For example, your rent, marketing campaign expenses or money spent on new equipment can be considered sunk costs. A sunk cost can also be referred to as a past cost.

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What is sell or process further?

The sell or process further decision is the choice of selling a product now or processing it further to earn additional revenue. This choice is based on an incremental analysis of whether the additional revenues to be gained will exceed the additional costs to be incurred as part of the additional processing work.

What are the two types of relevant costs?

The types of relevant costs are incremental costs, avoidable costs, opportunity costs, etc.; while the types of irrelevant costs are committed costs, sunk costs, non-cash expenses, overhead costs, etc.

What is an example of a relevant cost?

Example of Relevant Costs If ABC buys the press, it will eliminate 10 scribes who have been copying the books by hand. The wages of these scribes are relevant costs, since they will be eliminated in the future if management buys the printing press.

Is opportunity cost relevant for decision making?

An opportunity cost is a hypothetical cost incurred by selecting one alternative over the next best available alternative. Opportunity costs are relevant in business decision making. In addition, companies commonly use them when evaluating corporate projects.

What is the function of relevant information in short decision-making?

Relevant information is a prediction of the future, not a summary of the past. Historical (past) data have no bearing on a decision. Such data can have an indirect bearing on a decision because they may help in predicting the future.

What categories of information are relevant to decision-making in business?

The four categories of decision making

  • 1] Making routine choices and judgments. When you go shopping in a supermarket or a department store, you typically pick from the products before you.
  • 2] Influencing outcomes.
  • 3] Placing competitive bets.
  • 4] Making strategic decisions.
  • The constraint of decision making research.
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What qualitative information is relevant to your decision?

Qualitative information is relevant when: it makes a difference in the decision and it differs between the alternatives. it differs between the alternatives only. it makes a difference in the decision only.

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