Assume that you have an existing small business and you want to improve its financial performance.Relevant...

Assume that you have an existing small business and you want to improve its financial performance.Relevant financial information is defined as “the predicted future costs and revenues that will differ among the alternatives”. What financial information do you believe is most relevant to analyze and understand? Why?

Expert Solution

Relevant financial information is the future cost that you can save or incure and future revenue that you can lose or earn by taking a decision.

Most relevant financial information to analyse and understand is the future cost and revenue that will differ among various alternatives while taking a decision.

For example, I am running a hardware shop, and I want to improve the financial performance. I am deciding on whether to appoint a sales person to increase the sales or advertise the product in newspaper.

Advertising in newspaper will increase the sales by 10% and will cost $1000.

Sales person will be appointed on a fixed salary of $1000 and 5% sales commission on sales dollars. It is expected that the sale will increase by 25%.

Current sales in $10000.

Now the relevant cost for both the alternatives are advertising expenses and salary of sales person. Revelant revenue is the incremental and differencial revenue from both the alternatives.

Thus we need to analyse the incremental or differential cost and revenue among the various alternatives to the correct decision.

ekkarill92 answered 1 year ago

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