Chapter 17—Activity Resource Usage and Tactical Decision Making

Relevant Costing—focuses our attention only on a decision’s relevant information.

Relevant Cost—costs that differ across the different decision alternatives.

Sunk Cost—a past cost that has already been incurred and cannot be changed by any future actions.
These costs have no bearing on our future decisions. Another way to think about this is that this is a
cost that will not differ across any of the decision alternatives.

Opportunity Cost—these are the benefits that we give up by choosing one alternative over another.

Incremental Revenue—this is the amount of revenue that differs across decision choices; how much
more revenue will I earn by choosing a certain alternative.

Incremental Cost—the amount of cost that differs across decision choices; how much more cost will I
incur by choosing a certain alternative.

Special Order Decision-- Incremental Revenue – Incremental Cost = Incremental Profit

If incremental profit is a positive number, then we would accept the special order.
If incremental profit is a negative number, then we would reject the special order.
*Our relevant costs in this decision are typically only our variable costs.