RELEVANT COSTING

GROUP 8
 CONTENT
SHUTDOWN OR CONTINUE
01 DECISION

02 PRICING PRODUCT AND SERVICES

A COST PLUS PRICING

B TARGET COSTING
 SHUTDOWN OR CONTINUE DECISIONS

• Loss-making segments of a business such as products, customers, and

locations can be a significant drain on the resources of an organization.
Keeping a segment of business that is consistently generating a loss can be
hard to justify, especially if its economics are unlikely to improve in the
future.
ASSESSING SHUTDOWN PROBLEMS
Examples of relevant
costs include
• Variable expenses such as direct material and
direct labor;
• Direct fixed costs which are avoidable in case
of a closure;
Opportunity cost of continuing a business
activity.

• Non-cash expenses (e.g., depreciation);

non-relevant costs
• Sunk cost (e.g., cost of machinery); include:
• Committed expenses which are unavoidable;
• ‘One-off’ revenues and expenses (e.g., sale of
machinery, redundancy payments, etc.) that do not
reflect the underlying profitability of the business.
PRICING PRODUCT AND
SERVICES
Pricing products and services involves setting the monetary
value for goods or services offered by a business. Relevant
costing plays a crucial role in determining the optimal
pricing strategy, as it helps businesses understand the costs
associated with producing or providing a product or service
and how those costs influence pricing decisions.