Certified Management Accountant Practice Exam 2025 — Comprehensive Test Prep

In decision-making, relevant costs are those that will be directly impacted by the decision at hand. They play a crucial role because they affect the financial outcome of different choices. The correct choice highlights costs that differ between alternatives and can be avoided, which means they will change depending on the decision made.

When evaluating different options, managers focus on costs that will be incurred or saved if a certain alternative is chosen. For example, if a business is considering whether to discontinue a product, relevant costs would include costs associated with producing the product that can be avoided if production ceases. This avoidability ensures that the decision-maker can effectively assess the true financial impact of each alternative.

In contrast, costs that do not change between alternatives are irrelevant because they would remain the same regardless of the choice made. Similarly, costs that cannot be avoided or are not affected by the decision, such as sunk costs, also do not influence the current decision-making process as they have already been incurred and cannot be changed moving forward. Understanding which costs are relevant helps in making informed and financially sound decisions.