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Relevant costs and benefits for operating decisions:
In operating decisions, concentration is on best use of existing capacity. Incremental analysis based on differential cost and differential revenue is based directly on the concept of relevant cost and benefit. The term opportunity cost also springs from the thought underlying this concept.
Relevance of normal and abnormal cost:
The terms normal cost and abnormal cost, normal working conditions and abnormal cost cannot be treated alike. Similarly, cost accounting strategy for normal conditions will not hold good for abnormal conditions. The term normal stands for anything (cost of circumstances) which is in agreement with what is in agreement with what is representative, usual or regular. The term abnormal stands for anything (cost or circumstances) which is in agreement which is different from what is normal, ordinary or expected. Different cost accounting treatments are laid down for normal cost and abnormal cost.
Ask question #MinimumYears Purchase Costs Running cost discount factor 8% Running cost Savings PVS 0 -7000 -7000 1 2000 0.926 1852 5556 3704 2 2500 0.857 2142.5 5999 3856.5
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