Making decisions is one of the basic functions of a manager. To be successful in decision making, managers must be able to tell the difference between relevant and irrelevant data and must be able to correctly use the relevant data in analyzing alternatives. The purpose of this chapter is to develop these skills by illustrating their use in a wide range of decision-making situations. | Relevant Costs for Decision Making Chapter 13 13- Chapter 13: Relevant Costs for Decision Making. Making decisions is one of the basic functions of a manager. To be successful in decision making, managers must be able to tell the difference between relevant and irrelevant data and must be able to correctly use the relevant data in analyzing alternatives. The purpose of this chapter is to develop these skills by illustrating their use in a wide range of decision-making situations. Learning Objective 1 Identify relevant and irrelevant costs and benefits in a decision. Learning objective number 1 is to identify relevant and irrelevant costs and benefits in a decision. 13- Cost Concepts for Decision Making A relevant cost is a cost that differs between alternatives. 1 2 A relevant cost is a cost that differs between alternatives. 13- Identifying Relevant Costs An avoidable cost is a cost that can be eliminated, in whole or in part, by choosing one alternative over | Relevant Costs for Decision Making Chapter 13 13- Chapter 13: Relevant Costs for Decision Making. Making decisions is one of the basic functions of a manager. To be successful in decision making, managers must be able to tell the difference between relevant and irrelevant data and must be able to correctly use the relevant data in analyzing alternatives. The purpose of this chapter is to develop these skills by illustrating their use in a wide range of decision-making situations. Learning Objective 1 Identify relevant and irrelevant costs and benefits in a decision. Learning objective number 1 is to identify relevant and irrelevant costs and benefits in a decision. 13- Cost Concepts for Decision Making A relevant cost is a cost that differs between alternatives. 1 2 A relevant cost is a cost that differs between alternatives. 13- Identifying Relevant Costs An avoidable cost is a cost that can be eliminated, in whole or in part, by choosing one alternative over another. Avoidable costs are relevant costs. Unavoidable costs are irrelevant costs. Two broad categories of costs are never relevant in any decision. They include: Sunk costs. Future costs that do not differ between the alternatives. An avoidable cost is a cost that can be eliminated, in whole or in part, by choosing one alternative over another. Avoidable costs are relevant costs. Unavoidable costs are irrelevant costs. Two broad categories of costs are never relevant in any decision: A sunk cost is a cost that has already been incurred and cannot be avoided regardless of what a manager decides to do. A future cost that does not differ between alternatives is never a relevant cost. 13- Relevant Cost Analysis: A Two-Step Process Eliminate costs and benefits that do not differ between alternatives. Use the remaining costs and benefits that differ between alternatives in making the decision. The costs that remain are the differential, or avoidable, costs. Step 1 Step 2 .
