Relevant costs for decision-making are those costs that

Question

BlackTom AI · Accepted Answer

Relevant costs are costs that vary among alternatives.

1) Relevant knowledge points and concepts
- Relevant costs = differential/incremental/avoidable costs that differ between decision alternatives and will affect future cash flows.
- Irrelevant costs include sunk costs (already incurred), committed fixed costs that don’t change with the decision, and allocated common costs that won’t be avoided.
- For decision making, compare only those costs and revenues that change between options.

2) Step-by-step reasoning process
- Identify the alternatives being compared.
- List all costs and revenues for each alternative.
- Eliminate costs common to both alternatives (they do not affect the incremental comparison).
- Focus on costs that differ (the relevant/differential costs). Choose the alternative with the more favorable net differential outcome.

3) Example with intermediate steps
Suppose two options for producing 100 extra units:
Option A variable cost per unit = $10; Option B (subcontract) price per unit = $12. A company has fixed factory overhead of $1,000 (already committed).
- Incremental cost if produced in-house = 100 × $10 = $1,000.
- Incremental cost if subcontracted = 100 × $12 = $1,200.
- Differential cost = $1,200 − $1,000 = $200.
Fixed overhead $1,000 is unchanged and thus irrelevant. The cheaper alternative is A because its relevant cost is $200 less.

4) Why the correct answer is correct
Because only costs that change between alternatives affect which choice is better. “Vary amongst alternatives” captures the definition of relevant costs (they are avoidable or incremental), so decisions should be based on them.

5) Why other common alternatives are incorrect
- “Costs already incurred” (sunk) are irrelevant because they cannot be changed.
- “Fixed costs” are not automatically relevant; only if they change between alternatives.
- “Allocated/common costs” are irrelevant unless avoidable by a specific alternative.

6) Conclusion
Thus, the correct answer is “vary amongst alternatives,” which matches the provided answer.

Relevant costs for decision-making are those costs that单项选择题

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