What is a relevant cost? What makes information relevant to decision-making? What is differential analysis? What...

What is a relevant cost? What makes information relevant to decision-making? What is differential analysis? What is target pricing? Who uses it? What does target full product cost include? Relevant costs always determine which alternative should be chosen. Do you agree or disagree?

Explain.

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Expert Solution

A relevant cost is a cost that only relates to a particular decision, and which will vary in the future because of the decision that has been undertaken. The understanding of relevant cost is extremely important for doing away with the extraneous information from the entire decision-making process itself as they are irrelevant and would adversely affect the decision that is to be taken.

Relevant information is the data or the information that is related to predicted future costs and future revenue that vary as a result of the different choices made or alternatives chosen.

Differential analysis is a process in which analysis is carried out of the different costs that are incurred and benefits that are gained as a result of the various alternative methods to finding the solution to a particular problem.

Target Pricing is a pricing method that primarily focuses on the price at which the product would be competitively sold by the organization in the market and then work on the profit that it desires from the sale of its product and finally work backwards to calculate the target cost that it should attain in order to reap the desired profit by selling the product at the target price.

Target Costing is used mainly in the manufacturing sector. In addition it is also used in the Healthcare , construction and the Energy sectors also.

ekkarill92 answered 1 year ago

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