Relevant Cost, Pricing and Product Decisions
Relevant cash flows, special orders, make-or-buy, discontinuation and further processing.
How to study CIMA Operational Level
Secure E1, P1 and F1 knowledge before practising integrated judgement and professional communication. These single-best-answer assets do not reproduce or claim to simulate the pre-seen, unseen information, timed written sections and human marking of the Operational Case Study.
Core concepts
Concept 1
Identify future incremental cash flows.
Exam cue: Ignore sunk and unavoidable committed costs.
Concept 2
Include opportunity cost where capacity is scarce.
Exam cue: Ask what changes between alternatives.
Concept 3
Combine quantitative and qualitative evidence.
Exam cue: Check long-term commercial consequences.
Risk pitfalls and guardrails
Using full absorption cost as automatically relevant.
Guardrail: Check the applicable blueprint, task verb, assumptions, units, timing, evidence provenance and whether the conclusion follows.
Omitting opportunity cost.
Guardrail: Check the applicable blueprint, task verb, assumptions, units, timing, evidence provenance and whether the conclusion follows.
Accepting a special order that damages the core market.
Guardrail: Check the applicable blueprint, task verb, assumptions, units, timing, evidence provenance and whether the conclusion follows.
Memory anchors
Relevant cost
A relevant cost is a future cash flow that changes between alternatives.
Sunk cost
A sunk cost has already been incurred and is not decision-relevant.
Opportunity cost
Opportunity cost is the benefit sacrificed by choosing one alternative.
Checkpoint rule
Do the check-up only after you can summarize each concept in one sentence and identify one dangerous pitfall from memory.
Knowledge Check (after reading)
Short check-up to confirm understanding of this module.
Check-up Questions
A component needs 5 kg of material held in inventory. It cost £4/kg, can be sold for £3/kg, and replacement costs £6/kg. The material is regularly used. What is relevant cost?
A material is obsolete and has no alternative use or disposal value. What is its relevant cost for a special order?
Answer all questions to submit.
Next step personalized recommendations
Continue learning
Move forward only after this module is stable.
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