Explore BrainMass
Share

Analyzing relevant benefits & costs: how they work

This content was STOLEN from BrainMass.com - View the original, and get the already-completed solution here!

Please help analyzing relevant costs vs. relevant benefits.

What's the difference and how does each works? And, who uses them?

© BrainMass Inc. brainmass.com October 25, 2018, 8:55 am ad1c9bdddf
https://brainmass.com/business/relevant-costing-and-short-run-decision-making/analyzing-relevant-benefits-costs-work-557368

Solution Preview

Relevant costs and benefits are those costs and benefits that change between decisions. It is typically incremental benefits/costs and opportunity costs for contemplated actions.

Relevant benefits are usually a bit easier than relevant costs. A relevant benefit is usually a tangible cash flow or profit margin from being able to take a particular action or a cost that will be avoided from a particular action. If you decide to take on a special order, you know the increase in benefits - the price the customer will pay for the special order. Or, if you decide to let a vendor assemble something you used to do yourself, you know what costs will be avoided if you stop assembling.

Relevant (incremental) costs can be as clear but are sometimes harder to figure out. That is, what will the cost in the future be if you buy this equipment? You don't have any history and so this is a big guess. Sure, you might have similar equipment so it ...

Solution Summary

Your tutorial is 544 words and three references and gives the definition and some examples. It explains why these costs can be difficult to determine and why and then explains that nearly everyone uses this for classic business decisions.

$2.19
See Also This Related BrainMass Solution

Break-even analysis, relevant vs. non-relevant costs, allocated costs and activity-based costing

PART 1
Select an organization with one of the following critera:
- A non-profit organization with available financial statements
- A for-profit business organization -- you may select any public business by searching GOOGLE
Select your organization, give a short description of that organization.

PART 2
Identify any activity in your organization where you can apply breakeven analysis. You must be able to define:
- A unit of measurement for the activity
- Revenue per unit for the activity
- Variable costs for the activity
- Fixed costs for the period in the activity
If you cannot identify specific actual amounts, make a reasonable estimate and apply the tool as if the data were factual.
Your report should include
- The name and nature of the organization
- The activity and time period you used
- The inputs you used
- Your results
- Any implications from your results

Part 3
Identify a decision that has recently been made or will be made in the near future in your organization. Identify two relevant and two non-relevant costs in this decision. Support your answers using CM calculations.
If you cannot identify specific actual amounts, make a reasonable estimate and apply the tool as if the data were factual.
Your report should include
- The name and nature of the organization
- The activity and time period you used
- The inputs you used
- Your results
- Any implications from your results

Part 4
Review your organization and its treatment of allocated costs.
Retrieve any report in the organization that allocates common costs to a division, product, or service. Recast that report with unallocated costs and comment on the usefulness of that revised report.
If you cannot identify specific actual amounts, make a reasonable estimate and apply the tool as if the data were factual.
If you are unable to identify any report with allocated costs, create a report that you think may apply to your organization and treat the data as if it were factual.
Your report should include
- The name and nature of the organization
- The activity and time period you used
- The inputs you used
- Your results
- Any implications from your results

Part 5

Review your organization and its applicability for Activity Based Costing (ABC).
Identify a product or service in your organization that could use ABC. Then identify at least two activities for ABC and the appropriate cost drivers for those activities. Estimate the application rates for each cost driver.
If you cannot identify specific actual amounts, make a reasonable estimate and apply the tool as if the data were factual.
Your report should include
- The name and nature of the organization
- The activity and time period you used
- The inputs you used
- Your results
- Any implications from your results

View Full Posting Details