ACCA Applied Knowledge · Management Accounting · Accounting for management
A manager asks for information to decide whether to accept a one-off order at a price below normal selling price. Which type of information is most relevant to this decision?
Future incremental costs and revenues from the order are the most relevant information, because management decisions depend on what changes as a result. Historical absorbed costs, depreciation on existing assets and equity balances will not change with the order and so are irrelevant.
- AHistorical full absorption cost per unit from last year's financial statements
- BFuture incremental costs and revenues arising from the orderCorrect
- CTotal share capital and reserves at the reporting date
- DThe depreciation charge on existing machinery included in the published accounts
Explanation
Management accounting decisions use relevant, future, incremental cash flows. Historical absorbed costs and depreciation on existing assets are not affected by the decision, so they are not relevant. Equity balances do not inform a pricing decision.
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