Management decision making often involves first determining what information is relevant to the decision-making process. Understanding cost behavior and relevance allows managers to streamline the decision-making process. Profitability depends on the accurate interpretation of the revenues and costs associated with each decision. Determining the difference between relevant and irrelevant costs makes the decision process more efficient and accurate.
Evaluate relevant versus irrelevant information, and provide an example of each irrelevant cost discussed in your text.
Propose a scenario when differentiating between relevant and irrelevant costs is essential to the decision-making process.
Justify the reason that an opportunity cost would or would not be relevant to decision making. Use specific business examples.