All Future Costs are not always Relevant Cost
Relevant costs are those costs that will make a difference in a decision. Future costs are relevant in decision making if’ the decision will affect their amounts. Relevant costing attempts to determine the objective cost of a business decision. An objective measure of the cost of a business decision is the extent of cash outflows that shall result from its implementation. Relevant costing focuses on just that and ignores other costs which do not affect the future cash flows. Relevant information is the predicted future costs and revenues that will differ among the alternatives. It focuses on just that and ignores other costs which do not affect the future cash flows. Relevant costs are future costs that will differ among alternatives.
The underlying principles of relevant costing are fairly simple and you can probably relate them to your personal experiences involving financial decisions. Relevant costing is just a refined application of such basic principles to business decisions. The key to relevant costing is the ability to filter what is and isn’t relevant to a business decision.
There are many costs in the future that are relevant to incremental Cost, opportunity Costs, etc. There are costs also incurred in future but not relevant in decision making such as sunk cost, committed costs, non-cash expenses, general overheads, etc. So finally we can say that all future costs are not always a relevant cost. You might use the past costs to help you forecast those future costs, but the past costs are otherwise unrelated to the decision.
