Distinguish between the following terminologies as used in cost accounting: i) Relevant range and relevant costs. ii) Opportunity costs and discretionary costs. iii) By-products and joint products.

Distinguish between the following terminologies as used in cost accounting:

i) Relevant range and relevant costs.
ii) Opportunity costs and discretionary costs.
iii) By-products and joint products.

(i)Relevant range

The term relevant range is used to refer to the output range at which the firm expects to be operating
within a short-term planning horizon. This relevant range also broadly represents the output levels
which the firm has had experience of operating in the past and for which cost information is available.

Relevant costs
Relevant costs are those future costs that will be changed by a decision. The relevance of costs will
depend therefore on the purpose for which they are being used. They change between the alternative
courses of action being considered.

(ii) Opportunity costs
Opportunity costs are the costs of foregoing the next best alternative use of resources in a business.
For instance, the cost of using scarce production hours in producing a product might be the profit
foregone by not using those resources to producing another product.

Discretionary costs

These are costs that management has chosen to incur and that could be discontinued without a major
short-term impact on the firm's ability to maintain operations. These costs include charitable
contributions, the cost of a factory safety program, and many advertising costs.

(iii) By-products

Products that are part of the simultaneous production process and have a minor sales value compared
to the joint Products. They result incidentally from the main joint production.

Joint products
Two or more products arising simultaneously in the course of processing, each of which has a
significant sales value in relation to each other for example, in oil refining

- Diesel fuel, petroleum, paraffin, lubricants.

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marto answered the question on February 15, 2019 at 07:48

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