ACCA Applied Skills · Performance Management · Relevant cost analysis
Which of the following is a relevant cost for a decision on whether to accept a special order?
A relevant cost is a future, incremental cash flow arising from the decision. The cost of materials that must be bought specially for the order qualifies. Depreciation, absorbed fixed overhead and fees already paid do not change as a result of the order.
- ADepreciation on existing machinery that will be used for the order
- BFuture cash cost of material that must be purchased specially for the orderCorrect
- CFixed production overhead absorbed into the order at a standard rate
- DMarket research fees paid last month to identify the customer
Explanation
Relevant costs are future, incremental cash flows. Material that must be specially purchased is a future incremental cash cost. Depreciation is non-cash, absorbed overhead is not incremental, and the market research fee is already paid and so sunk.
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