Relevant costs and relevant benefits are not considered in Decision Making.

Question

BlackTom AI · Accepted Answer

Relevant costs are costs that will differ between alternative courses of action, and relevant benefits are the incremental gains that also differ between alternatives. These are central to rational managerial decision making.

1. Relevant knowledge points and concepts
- Relevant cost: future cost that changes depending on the decision (incremental/avoidable cost).
- Relevant benefit: future benefit that differs across alternatives.
- Non-relevant items: sunk costs (past, irretrievable) and unavoidable fixed costs that remain regardless of choice.
- Opportunity cost: the benefit forgone by choosing one alternative over another — also relevant.

2. Step-by-step reasoning
- Decision making requires comparing alternatives. Only items that change between alternatives affect the comparison.
- Identify all future cash flows and classify each as avoidable (relevant) or unavoidable/sunk (irrelevant).
- Sum relevant costs and subtract relevant benefits for each alternative to compute net advantage.
- Choose the alternative with the highest net benefit (or lowest net cost).

3. Calculational steps (if any)
- Example method (no numeric data here): Relevant Net Benefit = Sum of relevant benefits − Sum of relevant costs.
- Intermediate step: Exclude sunk costs and unavoidable fixed costs from these sums because they do not change with the decision.

4. Why the correct answer is correct
Because managers must consider only relevant costs and benefits when evaluating alternatives, the claim that “Relevant costs and relevant benefits are not considered in Decision Making” is incorrect. Ignoring them would lead to poor choices since non-relevant items distort comparisons.

5. Why the other option is incorrect
- The statement “True” would imply that relevant costs/benefits are not considered, which contradicts standard managerial accounting and rational decision-making practice. Therefore “True” is incorrect.

6. Conclusion
Given the definitions and the decision process, the correct multiple-choice answer is False, which matches the provided answer.

Relevant costs and relevant benefits are not considered in Decision Making.单项选择题

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