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Help on Realavent costing

dhara (student) (39 Points)

02 March 2010

hi frnds...

m c.a. final student 4m surat!

m going through the chaptr relavent costing nw a days! bt m finding it very difficult.. can any1 explain me the objective n concept of tis approch.. y v do n wat v do????

i knw d meaning of relavent cost n irrelevant cost bt nt able 2 solve it wen all comes mix in d form of big sum

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5 Replies

chippy (Chartered Accountant) (79 Points)
Replied 02 March 2010

Relevant costing is used in management accounting when deciding between two options in the future.

All sunk costs are ignored as they are common to both options.

All non-cash items such as depreciation are ignored as they are not part of future cash flows

Opportunity costs are included - These are costs you incurr as a result of not persuing the alternative, these come in the form of lost profits or savings on costs you would have otherwise incurred

U shud read the question carefully then u will b able to distinguish betw sunk, and other such costs...

Ask ur doubts...will try to clear dat ...ok

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dhara (student) (39 Points)
Replied 02 March 2010

ok m keeping part of questin here..

estimate

skilled labour 12 lakhs

Additional info:

skilled workers will b transfered to tis project from another project . Manager claimed that if the men wer returned to him he could have earned the company additional rs. 2 laks in the terms of profit.

chippy (Chartered Accountant) (79 Points)
Replied 02 March 2010

For labour the following will be helpful,

General Rule is labour is Variable Cost and therefore it is relevant.

If it is excessive labour/idle, Then it is committed cost...therefore dat is irrelevant

If it is skilled labour and is yielding contribution inother depts u shd take variable cost +opportunity cost as relevant cost

thrfor....in this case it is 12+2=14 lakhs..

kaushik (CA) (74 Points)
Replied 03 March 2010

Originally posted by : chippy
	For labour the following will be helpful, General Rule is labour is Variable Cost and therefore it is relevant. If it is excessive labour/idle, Then it is committed cost...therefore dat is irrelevant If it is skilled labour and is yielding contribution inother depts u shd take variable cost +opportunity cost as relevant cost thrfor....in this case it is 12+2=14 lakhs..