C HAP TE R 1 0 Relevant information for decision making Teaching tips and points to stress Information and the decision process The relevance concept is the underlying theme of Chapter 10. Students find this chapter difficult because of the variety of different types of decisions that are based on relevant costs and revenues and they have trouble applying the relevance concept to new situations. Try to assign a variety of homework problems with this chapter and emphasise the importance of independently solving problems. Emphasise to students that there are two primary keys to analysing relevant cost/revenue decisions. The first key is to distinguish between relevant and irrelevant costs and revenues. The second key is to use a CM approach. Distinguishing between VC and FC spurs, analysts to consider whether each variable and fixed cost is affected by the alternatives under consideration. The CM approach is most useful for short-run decisions, because in the long run, fewer costs are fixed. (In the very long run, nothing is fixed) Relevant costs meet two criteria (1) future costs that (2) differ between alternatives. Actually, only the second criterion is necessary. Past costs are already incurred, so they cannot differ between future alternative choices. However, emphasising the first criterion helps students remember that past costs are always irrelevant (except to the extent that they facilitate predictions.
