Page 145 - Microsoft Word - 00 Prelims.docx

Relevant costing

(c) Office cleaning expenses of £125 for next month. The office is cleaned
by contractors and the contract can be cancelled by giving one month’s
notice.

Is this close relevant to a decision to close the office?

This is not a relevant cost for next month since it will be incurred even if
the contract is cancelled today. If a decision is being made to close the
office, this cost cannot be included as a saving to be made next month.
However, it will be saved in the months after that so it will become a
relevant cost saving from month 2 onwards.

(d) Expenses of £75 paid to the marketing manager. This was to reimburse
the manager for the cost of travelling to meet a client with whom the
company is currently negotiating a major contract.

Is this cost relevant to the decision to continue negotiations?

This is not a relevant cost of the decision to continue with the contract.
The £75 is sunk and cannot be recovered even if the company does not
proceed with the negotiations.

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