Section A (a)NPV (b)Internal rate of return of the new project (c) Explain main principles to differentiate between relevant and irrelevant cost 2 (d)Explain opportunity cost 2
Section B 3 Introduction 3 Discussion 4 Management of working capital 4 Meaning and Concept of Working Capital management 5 The Importance of Good Working Capital Management 5 Approaches to Working Capital Management 5 Conclusion 6 Referenc 7
(c) Explain main principles to differentiate between relevant and irrelevant cost
Relevant Cost that is used to describe costs that is specific to management's decisions. The concept of relevant costs eliminates unnecessary data that could complicate the decision-making process. Relevant costs can be very important when it is determining whether to sell or keep a business unit, make or buy an item, or accept a special order. Also relevant are expected future costs that differ among alternative courses of action and may be eliminated if some economic activity is changed or deleted.
During the "Sok" project, labour cost and material cost are relevant cost,labour cost can influence company decide whether have these employee. Company can have a good budget of this cost to continue their new factory plan. Material cost also can decide this project can completed successfully.
Irrelevant costs are unaffected by management’s actions. Sunk costs are an example of irrelevant costs. Sunk costs are past costs that are now irrevocable.
For example, the depreciation on machinery during the "Sok" project, when confronted with a choice, they are not relevant and should not be considered in a decision-making analysis.
(d)Explain opportunity cost
Opportunity is the present value of the income that could be earned (or saved) by investing in the most attractive alternative to the one being considered. The cost of pursuing one course of action in terms of the