Introduction to Decision Analysis & Relevant Costing

What Is Decision Analysis?

Decision analysis is the process of selecting the best alternative by comparing the costs and benefits of different options. In managerial accounting, decisions should focus only on information that changes between alternatives. This approach helps managers maximize profits, reduce unnecessary costs, and allocate resources efficiently.

What Is Relevant Costing?

Relevant costing identifies costs and revenues that differ among decision alternatives and will occur in the future. Costs that remain unchanged regardless of the decision are irrelevant and should not influence the analysis.

• Relevant costs are future costs.
• Relevant costs differ between alternatives.
• Irrelevant costs remain the same regardless of the decision.
• Only relevant information should influence managerial decisions.