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DECISION MAKING
Assumptions
Unless you are given an indication to the contrary, you can
assume the following:
• Variable costs will be relevant
• They are avoidable – if you cease production they are not incurred
• Fixed costs are only relevant if they are incremental
• i.e. if they arise as a direct result of the decision
• Committed fixed costs = future spending already committed to by
decisions made in the past = not avoidable, therefore not relevant.
• Discretionary fixed costs = management can use discretion as to
whether or not costs must be incurred = avoidable, therefore
relevant.
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