What are the relevant costs?
The relevant costs are any type of cost that may change, depending on the decision. It is considered a key function within the proceedings, the idea of this type of cost definition is to find out how the budget will be influenced if a specific procedure is promoted. In order to evaluate the situation properly, it is necessary to look at all current costs and find out which of them would change as a result of the decision and which of them will remain constant. Those who change are said to be relevant to consider this procedure.
Assessment of the cost is not a particularly difficult process. It is only necessary to project a string of events that will take place if specific measures have been taken. For example, a restaurant that wishes to attract more lunch customers can consider the implementation of a noon special, which is only available for several hours every day. Before this new owner really implements this new owner will look at it, what type of impact will have the project on work, supplies and tools.
If it is found that the number of servers on the service is sufficient to master a larger crowd of lunch, this cost factor is not relevant, because none of what is already going on. If it is found that another worker in the kitchen is required to prepare food during the noon period, it represents a change in work costs and will be considered relevant costs. Since more food would probably be required to manage other lunch customers, these costs would also be relevant.
The same general director can be used for almost any decision. Investors can look at what the choice of the investment system would mean in terms of additional costs or demand for their time, and find out whether the effort is worth the expected result.The IM worries will probably lead to an increase in the volume of sales, which will equalize the costs of ordering this additional product. Understanding what the decision will change in terms of normal state of operations
Understanding the type and nature of relevant costs can facilitate the use of the accounting process for efficient cost management, thereby increasing the opportunity to gain profit. If the amount of relevant costs were so high that the potential for earnings is significantly reduced, it can be found that the procedure considered is not viable and abandoned. From this point of view, he identified the relevant costs or costs in any given situation not only increases the potential for increasing profits, but also prevents deterioration of the current level.