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Professor, I could not find any lecture on relevant costing. Can you please help me how can I study that topic? I am stuck in budgeting MTQs which ask for relevant costing.
I have few question regarding this topic also so please answer including these.
(1) Opportunity cost is not earned due to selecting a better alternative so what is reason for adding this in relevant costing.
Like a car has scrap value of 10000 but we decide to do delivery on that which helps to earn 40000.
Now here, opportunity cost is 10000 so why it is adding to 40000 if I say what is relevant cost of this car?(2) Extra Contribution is earned so why it is added. Like yesterday, a question came up that we have $6 variable cost before but after investment Variable cost is 4.5 so extra contribution is 1.5.
Please help me with these basics. Thank you.
Full relevant costing is not examined until Paper PM and there are full lectures on it.
As far as Paper MA is concerned, the only relevance is in the context of discounted cash flow when we are always looking at the incremental cash flows as a result of making the decision.
1. If they use the car (instead of scrapping it) then they are losing the 10,000 scrap proceeds but will be earning an extra 40,000 by using it on a delivery.
2. The extra contribution is an extra cash receipt as a result of making the decision.
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