Underlying Theory Ch7

Relevant Cost Analysis

The cost analysis that can be used in short-term decision-making. This analysis eliminates the
unnecessary data that could complicate the decision-making process. Can be stated to be relevant
if there is a change in cash flow caused by the decision. Change in cash flow can be identified if
the amounts in company’s bank statement whether increased or decreased.

The cost that can be considered as a Relevant Cost:

1. Not a Sunk Cost

An amount of money that already spent can’t affect a future decision.
2. A Differential Cost
A cost that different between the two or more alternatives.