Relevant Cost for Decision Making

Relevant cost for decision making is one of the wonderful tool of cost accounting in which we give the first preference to pay the cost which will be relevant. It means, we pay only minimum cost for achieving highest return. It means also, we leave all the irrelevant or non-relevant cost.

For example, you are buying the blank register of RS. 20 per sale from Mr. A whole-seller at the cost of Rs. 14 per register. But, after 2 months, you come to know that MR. C whole-seller sells same quality register of Rs. 12. OMG! you were losing Rs. 2 per register. You just leave MR. A and follow Mr. C because your cost is reducing with RS. 2. If every month for your retail shop, you are buying 10000 register, you are getting big saving of Rs. 20,000. So, Rs. 12 is the current time relevant cost for buying register.



Relevant Vs Non-Relevant Cost 

Meaning 

All cost will be relevant if we can not leave all such cost if we have to take big business decision.

All cost will be non-relevant if we can take big business decisions without such costs.

Clearing With Simple Example

 When resources are Constrained 

You have no money in pocket and you are doing business. At that time, you take big business decision by watching relevant cost only.

For example, you are selling A, B and C products. If you are limited money and time. So, you have to choose best one product out of three products. For this, first you identify its main constrains. One is cost of producing and time of production. In this case , you will produce only those product which will give highest profit per hour.

You can calculate gross profit or contribution margin = selling value - variable cost

Second gross profit or contribution margin per hour = Total contribution margin per product / total hours of production.

You will choose one product out of A, B and C which will give highest contribution margin per hour.

Learn same with following Video Tutorial

Video Tutorial






Related Resources 

COMMENTS

Comments on this Website
.
Share above Content to Your Friends



Name

access account accountant Accounting accounting definitions accounting ebook Accounting education accounting procedure accounting process outsourcing Accounting Software advance advertising africa Amalgamation amendments announcements Annuity assets audit auditing Australia B.Com. balance sheet bank Bank reconciliation banking basic accounting BBA benefits best bill black money blog bloggers book keeping bookkeeping Branch Accounting - full tutorial budget Budget variance business businessman CA calculator canada capital capital budgeting career cash cash book cash flow statement Chiense children china class coaching coins college commerce commerce students company computer computer accounting conference Contact vinod kumar corporate accounting cost cost accounting cost center cost centre CPA credit credit card cs currency data Debit and credit debit cards debt debtor degree depletion depreciation documents dollar domain Downloads Dubai e-accounting earning education Education Loans email employee EPF ERP euromoney examination excel excise duty expenses facebook factor of loan fans feature fifo FII fiji finacle finance Financial financial accounting fire insurance flickr flow forensic forex formula france fraud free fun function fund GAAP GDP gdr germany gold goodwill goodwill accounting google google apps google apps google base google buzz google calendar Google docs google finance google fusion tables google talk govt. GST guide health Hindi Hindi Language history holding company How to treat FBT in Tally 9 HRA ICAI ICAWI ICICI Bank IFRS income income statement Income Tax India indian railway Indonesia inflation inflation accounting infographics information inspiration insurance insurance accounting interest international Internet Introduction of Tally 9 inventory investment invoice IT Japan Job costing journal entries Kalculate keyboard kindle kuwait laptop law LBT learning lease lecture ledger leducation Leverage Analysis liabilities lifo linkedin loan logical point loss loss of profit M.Com. m.phil malaysia management accounting manual accounting manufacturing account market marketing mastercard material MBA MCA media migration mobile money ms word ms. excel multi currency in tally 9 Multicurrency Accounting mutual fund national security new and sacrifice ratio new york times new zealand news NGO nonprofit-accounting North Georgia Mountains NPV NSE odbc office oman online application online accounting otcei pakistan parents pay pal pdf pie chart pie chart of income pnb podcast ppf presentation price privacy policy prize money prof. vinod kumar profit profit and loss account project management provision purchase puzzles quickbooks Quote quotes quotes of svtuition rating agency ratio analysis RBI readers real estate rectification of errors remote control reports reserves responsibility accounting retirement revenue Revenue reserves review risk rupees salary sale saudi arabia saving sbi scholarship school SEBI security service tax share share trading Shares shri lanka singapore sms social accounting society solution South Africa stock stock exchange structure student students study subsidiary company svtuition swiss bank tally tally 9 Tally 7.2 Tally 9 Tally.ERP 9 tanzania tax Tax Accounting TDS teacher teaching technology test testimonial testimonials thailand tips trading trading on equity transaction trend trial balance tuition twitter UAE UGC - NET Commerce UK United Arab Emirates university usa valuation VAT Video Voucher and vouching wikipedia working capital youtube
false
ltr
item
Accounting Education: Relevant Cost for Decision Making
Relevant Cost for Decision Making
http://4.bp.blogspot.com/-ud83mpyOW78/VZYNnq1XfeI/AAAAAAAASCQ/BOhcIa21ULs/s640/relevant%2Bcost.PNG
http://4.bp.blogspot.com/-ud83mpyOW78/VZYNnq1XfeI/AAAAAAAASCQ/BOhcIa21ULs/s72-c/relevant%2Bcost.PNG
Accounting Education
http://www.svtuition.org/2015/07/relevant-cost-for-decision-making.html
http://www.svtuition.org/
http://www.svtuition.org/
http://www.svtuition.org/2015/07/relevant-cost-for-decision-making.html
true
2410664366776677676
UTF-8
Not found any lecture VIEW ALL Readmore Reply Cancel reply Delete By Home PAGES Lectures View All RECOMMENDED FOR YOU Category ARCHIVE SEARCH ALL Lectures Not found any lecture match with your request, please help to write it and send it to our email at vinod@svtuition.org for making this website free accounting and finance encyclopedia. Back Home Sunday Monday Tuesday Wednesday Thursday Friday Saturday Sun Mon Tue Wed Thu Fri Sat January February March April May June July August September October November December Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec just now 1 minute ago $$1$$ minutes ago 1 hour ago $$1$$ hours ago Yesterday $$1$$ days ago $$1$$ weeks ago more than 5 weeks ago Followers Follow THIS CONTENT IS PREMIUM Please share to unlock