Page 39 - Unisa Test 4 Manac Slides

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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