Chapter 10 Relevant Information for
Decision Making
relevant costing - answersfocuses managerial attention on a decision's relevant (or
pertinent) information
the four steps in the relevant costing decision process - answers1. The necessity of
making a decision becomes evident
2. Decision choices or alternatives are identified
3. The relevant costs and benefits associated with each decision alternative identified in
step 2 calculated
4. The decision alternative providing the largest net benefit to the organization is
selected
for information to be relevant, it must possess three characteristics: - answers1. be
associated with the decision under consideration
2. be important to the decision maker
3. have a connection to, or bearing on, some future endeavor
as the decision time horizon is reduced... - answersfewer costs and revenues are
relevant because the majority of such amounts cannot be changed by short-term
management actions; in the longer term, management action can influence virtually all
costs
incremental revenue (differential revenue) - answersis the amount of revenue that
varies across decision choices
incremental cost (differential cost) - answersis the amount of cost that varies across
decision choices
most variable costs are relevant, but most fixed costs are not - answersthere are
exceptions to this general rule, particularly in the long-run
opportunity cost - answersrepresents the benefit forgone because one course of action
is chosen over another
only future costs and revenues can be influenced by current decisions and, as the time
horizon lengthens... - answersa larger set of future costs are differential, avoidable, and
relevant
Decision Making
relevant costing - answersfocuses managerial attention on a decision's relevant (or
pertinent) information
the four steps in the relevant costing decision process - answers1. The necessity of
making a decision becomes evident
2. Decision choices or alternatives are identified
3. The relevant costs and benefits associated with each decision alternative identified in
step 2 calculated
4. The decision alternative providing the largest net benefit to the organization is
selected
for information to be relevant, it must possess three characteristics: - answers1. be
associated with the decision under consideration
2. be important to the decision maker
3. have a connection to, or bearing on, some future endeavor
as the decision time horizon is reduced... - answersfewer costs and revenues are
relevant because the majority of such amounts cannot be changed by short-term
management actions; in the longer term, management action can influence virtually all
costs
incremental revenue (differential revenue) - answersis the amount of revenue that
varies across decision choices
incremental cost (differential cost) - answersis the amount of cost that varies across
decision choices
most variable costs are relevant, but most fixed costs are not - answersthere are
exceptions to this general rule, particularly in the long-run
opportunity cost - answersrepresents the benefit forgone because one course of action
is chosen over another
only future costs and revenues can be influenced by current decisions and, as the time
horizon lengthens... - answersa larger set of future costs are differential, avoidable, and
relevant
