ACTG 2020 Chapter Notes - Chapter 13: Convenience Store, Accept (Organization), Financial Statement
Document Summary
Making: relevant costing: relevant costs costs that differ among alternatives under consideration, incurred in future. Recall: differential, incremental, opportunity, and sunk costs. Costs/benefits that differ in total among alternatives + incurred in future relevant to decisions. If cost = same for all alternatives, can be ignored: avoidable cost cost that can be eliminated (in whole or part) by choosing one alternative over another in a decision-making situation (relevant and differential costs) Only avoidable costs = relevant; unavoidable costs = irrelevant. Two types of irrelevant costs: sunk costs (already incurred, future costs that do not differ between alternatives. To identify costs/benefits relevant in situation: eliminate irrelevant costs, use remaining relevant costs/benefits to make decision, examples pgs. Enough information to prepare detailed income statement for all alternatives rarely available (i. e. making decision related to single product of multi-departmental, multi-product firm) Combining relevant and irrelevant costs can cause confusion and distract from info that matters. Risk exists that irrelevant data interpreted incorrectly.