Virrey, Adilyn Grace C.

BSA – 2B
Strategic Business Analysis

Research Paper
1. What is Relevant Costing
- In management accounting, the phrase "relevant cost" refers to avoidable expenses that
are only incurred in connection with certain business actions. The idea of relevant cost is
utilized to cut out extraneous information that can make decisions more difficult. Consider the
decision of whether to sell or maintain a company unit using relevant cost as an example. A
cost that is exclusively related to one particular management choice and will change as a result
of that decision is said to be relevant. When it comes to removing irrelevant information from a
particular decision-making process, the relevant cost idea is quite helpful. Additionally,
management is prohibited from focusing on data that may otherwise improperly influence its
judgment by removing unnecessary expenses from a decision.
2. What are the different scenarios under relevant costing.

 Consider the scenario when a customer hurries up to the ticket window to buy a
ticket for a flight leaving in 25 minutes.
 The Archaic Book Company (ABC) is considering purchasing a printing press for
its medieval book division.
3. Site examples of each of the scenarios.
 To determine the cost of a ticket, the airline must take all pertinent expenses
into account. Almost all of the expenses associated with accommodating the
extra passenger have already been paid for, including the cost of fueling the
aircraft, the cost of using the airport's gate, and the wages and benefits for the
entire crew. They are "sunk expenses" or irrelevant charges because they have
already been paid for. The airline bases the last-minute ticket pricing choice on
just a few tiny expenditures, including the labor to load the passenger's bags and
any food supplied mid-flight.
 If ABC purchases the press, 10 scribes who have been manually transcribing the
books will be laid off. The salaries of these scribes are pertinent expenses
because, if management purchases the printing press, they will eventually be
abolished. However, as it will not alter as a result of this choice, the cost of
corporate overhead is not a pertinent expense.
 As another illustration, if ABC decides to completely shut down its medieval book
sector, only expenditures directly related to that choice will be taken into
 account. Once more, since it won't change if the division is sold, the cost of
corporate overhead is not a pertinent expense for making this choice.

4. How does relevant costing contributes to the strategic business analysis?

- A valuable financial indicator is relevant cost since it aids businesses in
minimizing unnecessary or irrelevant expenditures that would otherwise
make decision-making more difficult. If something has no economic impact
on your decisions, it is an irrelevant cost. In management accounting, the
phrase "relevant cost" refers to avoidable expenses that are only incurred in
connection with certain business actions. The idea of relevant cost is utilized
to cut out extraneous information that can make decisions more difficult.
Relevant expenses aid in eliminating superfluous information that could
impede decision-making. This idea may be used by management to steer
clear of wasteful spending and create corporate decisions that are cost-
effective. It assists managers in making wise choices on pricing, whether to
place a certain order for inputs or not, whether to drop or add a product to
the current product line, and other matters.