The relevant cost of resources

In this lesson

1. 0:00 Relevant cost of resources overview
2. 0:21 Material in inventory and continuous use
3. 0:50 Material in inventory with no other use
4. 1:14 Scarce material and opportunity costs
5. 1:56 Material not in inventory purchasing decision
6. 2:18 Chilcote gazebo quotation worked example
7. 4:34 Choosing between metal options analysis
8. 5:51 Relevant cost of labour principles

About this lesson

Relevant costing strips away sunk costs and absorbed overheads to focus only on costs that actually change as a result of your decision. The video walks you through four key material scenarios: materials in regular use (use replacement cost), materials with no other use (use resale value), scarce materials (use opportunity cost), and materials you need to purchase externally (use current market price). You'll see how to apply this logic to a real example involving a custom gazebo quotation, where you'll learn to choose between using existing inventory or buying new materials based on true incremental costs. For labour, the approach shifts based on your staffing situation. If your salaried employees have spare capacity, their relevant cost is zero—you're paying them anyway. If they're fully occupied, you'll either hire additional staff at current market rates or redirect them from other work, in which case the lost contribution becomes your relevant cost. This section equips you to avoid common pitfalls like including absorbed overheads or historical inventory costs in your decision-making. By mastering relevant costing, you'll confidently tackle Performance Management questions and real-world scenarios where distinguishing between relevant and irrelevant costs directly impacts profitability and exam success.

Duration: 7m