Chapter 10: Relevant costs and decision making

What is a relevant cost and what are the 3 characteristics it has?

What do relevant costs represent?

What is an opportunity cost?

What is a sunk cost, is it relevant to an investment decision?

What is a committed cost, is it a relevant cost?

What is a fixed cost? What should be included in investment decisions?

What are non-cash items, how should they be treated?

What are notional costs, are they relevant?

What are avoidable costs, are they relevant?

Describe the decision tree when determining relevant cost of materials.

Describe the decision tree when determining relevant cost of labour.

How is special order pricing calculated?

What should happen to an order if selling price > relevant cost?

When should products be further processed?

When should a product/department be discontinued?

How is a make or buy decision made?

What do businesses need to determine the difference between when deciding whether a closure/discontinuation should occur?

Explain some of the non-financial factors of discontinuation/ closure on:

• Staff

• Customers

• Community

• Company

What is a limiting factor, what is the rule when there is just one limiting factor?

What is the step-by-step approach of a make or buy decision with a limiting factor?

Explain the following non-financial factors considered part of the decision making process during a make or buy decision with a limiting factor:

• Reliability of external supplier

• Specialist skills

• Impact on staff

• Customer reaction

What is weighted benefit scoring?