Reply to statement below in a 100 words or more about relevant cost for decision making

  • Relevant cost are those cost that can be avoided that are incurred while making business decisions. When looking at relevant cost you are trying to make the best decisions that will help to make the company better. For instance if you have a company that is not at fully producing a product for a long time and is incurring cost the business may decided to close the plant down as a way to utilize resources elsewhere where gains are being made. By looking at relevant cost it helps to find irrelevant information that can then be eliminated from a decision making process and help to get rid of actual cost. Relevant cost usually look at three different cost including opportunity, differential, and avoidable cost. opportunity cost is the loss that is incurred by choosing one option over another option that is available. A differential cost is one that makes up the difference between the available choices that are at hand. Lastly avoidable cost are those that are avoided by making one choice over another. These relevant cost are important for a company to look at so their business moves forward and is profitable.
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