unit 6 - costing

lori
lori Registered Posts: 25 Dedicated contributor ? ? ?
morning all
can someone explain the difference between relevant and irrelevant costs i can't seem to get it to stick in my head
good luck to all next week
:thumbup1:

Comments

  • rachy1975
    rachy1975 Registered Posts: 366
    lori wrote: »
    morning all
    can someone explain the difference between relevant and irrelevant costs i can't seem to get it to stick in my head
    good luck to all next week
    :thumbup1:

    relevant cost are the ones that are related to the project for example ones that will change if you do the project...irrelevant costs are ones that will happen if you do the project or not...hope that makes sense!!
  • A-Vic
    A-Vic Registered Posts: 6,970
    rachy1975 wrote: »
    relevant cost are the ones that are related to the project for example ones that will change if you do the project...irrelevant costs are ones that will happen if you do the project or not...hope that makes sense!!

    Hi Racheal so could you say irrelevent costs are like rent and rate (Fixed costs)
  • rachy1975
    rachy1975 Registered Posts: 366
    A-Vic wrote: »
    Hi Racheal so could you say irrelevent costs are like rent and rate (Fixed costs)

    i dont think so...i think this is what it is......
    if you make chairs for example your costs are the wood and glue;
    if a cmpany come to you and ask for x amount of chairs and a discount on them for this order or if you complete this order you get discount on wood for example they are relevant costs as it is directly to do with that order/project and will change if you go ahead with it....the cost of glue for example is irrelevant as this will remain the same whether you do the order/project or not

    i think this is it but will check my books later and confirm!!!
  • Esme
    Esme Registered Posts: 711
    I think you are right to say that fixed costs are irrelevant and variable costs are relevant.

    If you look at Dec 08 exam answers there is a questions specifically asking about this.

    'Relevant (avoidable) costs are costs that can be saved by not following a course of action, whilst irrelevant (unavoidable) costs are incurred irrespectively. Only relevant costs are considered for short-term decision-making.

    The variable costs and the variable element of the semi-variable costs are relevant costs.The fixed costs and the fixed element of the semi-variable costs are irrelevant in the short term.'
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