Are Fixed Costs Relevant In A Make Or Buy Decision


What is relevant cost in decision making?

Relevant cost is a managerial accounting term that describes avoidable costs that are incurred only when making specific business decisions. The concept of relevant cost is used to eliminate unnecessary data that could complicate the decision-making process. via

Can fixed cost be relevant cost?

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. via

How does fixed cost affect decision making?

Decision Making

The availability of fixed cost information frequently promotes business decisions that reduce the operating leverage due to overproduction and inventory stockpiling. via

Which of the following costs are relevant to a make or buy decision *?

Explanation: Direct labor cost is a relevant expense that is to be considered in a make or buy decision making process. It is important that the manager will know the alternative that will give lower relevant cost which will cause an increment to the company's net profit. via

What is an example of a relevant cost?

They are examples of past (sunk) costs. The original costs are not avoidable and are common to all alternatives. The cost of the locks, the labour cost of fitting them, and the cost of delivery are differential cash flows that will be incurred if the doors are modified. They are therefore relevant costs. via

What are the two types of relevant costs?

The types of relevant costs are incremental costs, avoidable costs, opportunity costs, etc.; while the types of irrelevant costs are committed costs, sunk costs, non-cash expenses, overhead costs, etc. via

What makes a cost relevant?

'Relevant costs' can be defined as any cost relevant to a decision. A matter is relevant if there is a change in cash flow that is caused by the decision. The change in cash flow can be: additional amounts that must be paid. via

Is salary a relevant cost?

Relevant costs are those costs that will make a difference in a decision. Relevant costs are future costs that will differ among alternatives. The salaries of the product line managers and other employees whose salaries will be eliminated are relevant to the decision. via

Are all future costs relevant Why?

Relevant costs are those costs that will make a difference in a decision. Future costs are relevant in decision making if' the decision will affect their amounts. Relevant costs are future costs that will differ among alternatives. via

Why is fixed cost not important in decision making?

It can be noted that fixed costs are often irrelevant because they cannot be altered in any given situation. via

Is rent a fixed expense?

Fixed costs remain the same regardless of whether goods or services are produced or not. The most common examples of fixed costs include lease and rent payments, utilities, insurance, certain salaries, and interest payments. via

Why are fixed costs generally not relevant for decision making?

Generally speaking, most variable costs are relevant because they depend on which alternative is selected. Fixed costs are irrelevant assuming that the decision at hand does not involve doing anything that would change these stationary costs. via

Which of the following best describes relevant cost?

A "relevant cost" is best described by which of the following? a positive contribution margin. via

Which of the following costs are always irrelevant in decision making?

Sunk costs are those costs that happened and there is not one thing we can do about it. These costs are never relevant in our decision making process because they already happened! These costs are never a differential cost, meaning, they are always irrelevant. via

Which of the following is an example of sunk cost?

A sunk cost refers to a cost that has already occurred and has no potential for recovery in the future. For example, your rent, marketing campaign expenses or money spent on new equipment can be considered sunk costs. via

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