Question

What are the characteristics of a relevant cost/cash flow?

Answer 1

Following are the charcteristics of Relevant Cost:

1. These costs are relevant for decision making or In other words these costs are considered when there is a decision to make that whether a product is to be continued or disccontinued or in make or Buy decision or any other similar scenario.

2. These costs are expected to be incurred or occur in future. Relevant costs exclude the Past costs which has already been incurred or expensed as these does not have any bearing on the decision making.

3. Relevant costs are differnt between different alternatives, It means that if any cost is incurred in an alternative 1 then the amount of that cost incurred in alternative 2 shall be different from the amount incurred in alternative 2.