Which costs is relevant in decision making?
- Avoidable costs.
- Incremental costs.
- Opportunity costs.
- Future cash flows.
Irrelevant costs are those that will not change in the future when you make one decision versus another. Examples of irrelevant costs are sunk costs, committed costs, or overheads as these cannot be avoided. There is no correct answer for each business, it will often alter per situation.
| Q. | Which of the following costs is not relevant when considering the closure of a department within a factory? |
|---|---|
| B. | Direct materials |
| C. | Fixed overheads |
| D. | Direct labour |
| Answer» c. Fixed overheads | |
(c) purchase cost of the machine.
Fixed costs can be relevant but they have to be related to a specific decision. On the other hand, fixed costs that are general in nature (i.e. fixed costs that we incur regardless of whichever decision is made), would not be considered relevant.
Question: Joint costs are not relevant to the decision to sell a product at the split-off point or to process the product further.
Sunk costs are those which have already been incurred and which are unrecoverable. In business, sunk costs are typically not included in consideration when making future decisions, as they are seen as irrelevant to current and future budgetary concerns.
Sunk costs are never relevant in decision making. Future costs that do not differ between the alternatives in a decision are avoidable costs.
Hence, we conclude that changing the desired outcome is NOT one of the steps involved in the decision-making process.
Capital Budgeting is a process of making a decision about the financial desirability of a project. Here,Sunk cost(A) and Allocated overheads(C) is not relevant in capital budgeting.
Which of the following costs is not a product cost Mcq?
The correct answer is D.
Cost accountant's salary is not considered product cost because product cost is those expenses incurred in the production process of a product sold to the customers. Direct material, direct labor, and manufacturing overhead are all included in product costs.
Answer and Explanation: The correct answer to the given question is option b) sunk costs.
Summary. In both economics and business decision-making, sunk cost refers to costs that have already happened and cannot be recovered. Sunk costs are excluded from future decisions because the cost will be the same regardless of the outcome.
Variable costs are always a relevant cost: Variable costs are relevant costs only if they differ in total between the alternatives under consideration.
The Importance of Variable Cost to a Business
If variable costs are low the business will have more budget to spend in areas of the business as there will be no sudden costs incurred.
Relevant costs for decision making
To affect a decision a cost must be: a) Future: Past costs are irrelevant, as we cannot affect them by current decisions and they are common to all alternatives that we may choose.
Which of the following are relevant in short-term decision making? Purchase price, reduction in variable costs, additional revenue and opportunity costs are relevant in short-term decision making.
The current purchase price of $22 will be used to determine the relevant cost of Material C as this will be the value of each unit purchased. The original purchase price of $20 is a sunk cost and so is not relevant. Therefore the relevant cost of Material C for the new product is (120 units x $22) = $2,640.
Put simply, opportunity cost is what a business owner misses out on when selecting one option over another. It's a way to quantify the benefits and risks of each option, leading to more profitable decision-making overall.
Sunk Cost is that cost which is already spent. Once it is incurred, it can not be recovered. Since it is already spent, its irrelevant in decision making.
Which of the following costs are always irrelevant in decision making group of answer choices?
A cost that can be avoided by choosing one alternative over another is relevant for decision purposes. Sunk costs are never relevant in decision making.
Variable costs are always relevant costs. An avoidable cost is a cost that can be eliminated (in whole or in part) by choosing one alternative over another.
Avoidable costs are irrelevant costs in decisions.
| Q. | Which of following is not phase of decision making process |
|---|---|
| B. | Analysis |
| C. | Intelligence |
| D. | Choice |
| Answer» b. Analysis | |
The correct answer is evaluating the decision's effectiveness. The last step in the process of decision-making is Evaluating or Monitoring the decision's effectiveness. Monitoring is required to determine the effectiveness of the implemented decisions.
| Q. | __________ is not one of the eight steps in the decision making process. |
|---|---|
| B. | Analyzing alternative solutions |
| C. | Implementing the decision |
| D. | Delegating the decision making |
| Answer» d. Delegating the decision making | |
Capital budgeting decisions are a part of the overall financial management process for a firm. Decisions like constructing a new factory, purchasing heavy machinery for production or making a significant investment in an outside business entity are examples of Capital Budgeting.
Cost of capital does not mean:
Rate of interest. Expectations of investors for dividend.
Capital budgeting helps in making the most optimal decisions. It includes expansion programs, merger decisions, replacement decisions but will not comprise of the inventory related decision making. Was this answer helpful?
Answer & Solution. Solution: Goodwill written off is not considered for preparation of cost sheet. A firm will write off goodwill when it wants to shrink the balance sheet and if it thinks that the goodwill doesnt represent anything.
Which among the following costs are not useful for managerial decision making Mcq?
Answer: The cost which is not useful for managerial decision making is sunk cost.
Answer and Explanation: The correct answer is option B. Fixed costs are constant in total, and variable costs are constant per unit.
The cost of buying and manufacturing are both taking into consideration while making the decision. Hence, the cost of production is considered for 'make or buy' decision. Was this answer helpful?
2-1. Which costs are pertinent to economic decision making? Which costs are not relevant? The marginal (incremental) costs and benefits are pertinent to economic decision making.
Hence, we conclude that changing the desired outcome is NOT one of the steps involved in the decision-making process.
The opportunity cost of a given action is equal to the value foregone of all feasible alternative actions.
ANSWER: B. 52. Decision making is the selection based on some criteria from two or more possible alternatives is defined.
Which of the following is most likely relevant in a make-or-buy decision? In a make-or-buy decision, the original purchase price of equipment that is currently used in the manufacturing process is usually a relevant cost because the equipment can be sold for its salvage value. Fixed costs are always sunk costs.
What is not considered a cost classification associated with decision making? Indirect costs.
Fixed costs can be relevant but they have to be related to a specific decision. On the other hand, fixed costs that are general in nature (i.e. fixed costs that we incur regardless of whichever decision is made), would not be considered relevant.
Is sunk cost relevant to decision-making?
Sunk costs (past costs) or committed costs are not relevant. Sunk, or past, costs are monies already spent or money that is already contracted to be spent. A decision on whether or not a new endeavour is started will have no effect on this cash flow, so sunk costs cannot be relevant.
Sunk costs are never relevant in decision making. Future costs that do not differ between the alternatives in a decision are avoidable costs.
| Q. | Which of following is not phase of decision making process |
|---|---|
| B. | Analysis |
| C. | Intelligence |
| D. | Choice |
| Answer» b. Analysis | |
The correct answer is evaluating the decision's effectiveness. The last step in the process of decision-making is Evaluating or Monitoring the decision's effectiveness. Monitoring is required to determine the effectiveness of the implemented decisions.
| Q. | __________ is not one of the eight steps in the decision making process. |
|---|---|
| B. | Analyzing alternative solutions |
| C. | Implementing the decision |
| D. | Delegating the decision making |
| Answer» d. Delegating the decision making | |
