Page 75 - P1 Integrated Workbook STUDENT 2018

Relevant costs and decision making

Relevant costs

1.1 Characteristics

Relevant costs and revenues are those costs and revenues that change
as a direct result of a decision taken.

They have the following characteristics:

 future we ignore sunk/historic costs

 incremental we therefore ignore most fixed costs (unless they
change because of the decision) and all committed costs

 cash flows we ignore accounting adjustments such as depreciation.

Illustrations and further practice

Now try example 1 from Chapter 6.

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