Acct Disc 8
Acct Disc 8
The relevant costs of the business are related to those costs, which will incur in the future of the business. The expenses or the costs already incurred are irrelevant and known as the past costs or the sunk costs of the business. Therefore, in the decision making process, the management of the business must take account of the relevant cash costs to increase the accuracy of the actual future cash outflows and the cash inflows. ("Relevant Costing and short-term decisions")
In the current scenario, the Stellar Packaging Product is planning to diversity the range of their products and their main products are the packaging of the candy and other food bag packaging. In this case, the most obvious relevant cost will be the cost of installing the new machinery to achieve the target of different types of packaging styles. For example, there is machinery available in the market which can produce different types of packing products. Therefore, the total cost of the new machinery will be the relevant cost for the Stellar Packaging Product. Similarly, in case of new production line, the training cost of the labor is another example of the relevant cost because in the future, labor will use the new machine to produce different products. Moreover, hiring of new staff members, such as a maintenance engineer for the new machine is an example of relevant cost. ("Cost Concepts and Analysis I")
The most common example of the irrelevant cost in the current scenario is the rent of the building or factory. The rent of the building is treated as the annual rent in the financial statements. Therefore, the rent of the factory is irrelevant in the case of the new production line project. Similarly, the salaries of the labor and utility bills are the examples of other irrelevant costs. ("Cost Concepts and Analysis I")
References
Relevant Costing and short-term decisions. Retrieved February 28, 2016, from
http://kfknowledgebank.kaplan.co.uk/KFKB/Wiki Pages/Relevant Costing and short-term decisions.aspx
Cost Concepts and Analysis I. Retrieved February 28, 2016, from
http://www.jbdon.com/cost-concepts-and-analysis-i.html
