Describe The Costs That Are Relevant For Decision Making. Can You Help?

The cost which a company incurs and which can help in decision making process of a company is known as relevant cost. According to CIMA, relevant cost is used by the management in the decision making process. There are some important categories of relevant costs.

The most important costs, which the company uses in the decision making process include, the cost of manufacturing of products or product cost. The cost of the process design in the manufacturing process and in the case of the services, the cost incurred for service layout. In fact each and every cost of the company can impact any decision of the company at certain point of time like maintenance cost can be used when you want to increase the efficiency of the company.

Therefore, it is better to mention the costs which are not relevant with decision making. These costs include the historical costs of the company, incremental costs which are not used in decision making and depreciation cost. Some other types of costs include the sunk cost and common costs like rent. However, the opportunity cost is the most important cost for the company and it is very important for decision making process.

Business decision making should focus on the effect of the decision on the bottom line, now and in the future.* Throughput accounting lumps the various business revenues and expenses into

• Throughput
• Inventory
• Operating Expense.

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* Certain "necessary conditions" must be observed: Business operations should be legal, moral, ethical, and result in the betterment of humankind. You may want to add others. The "bottom line" for a charity or service organization is different that that of a profit-making organization.