Relevant revenue

Definition

Relevant revenue is the income directly associated with a specific decision or action. It is used to determine the financial impact of choosing one alternative over another.

5 Must Know Facts For Your Next Test

1. Relevant revenue must differ between alternatives.
2. It only includes future revenues, not past transactions.
3. Relevant revenue can be affected by variable and fixed costs.
4. It helps in determining whether to accept or reject special orders.
5. Not all revenue is relevant; only incremental revenue matters.

Review Questions

• What distinguishes relevant revenue from total revenue?
• Why is it important to consider only future revenues when identifying relevant revenue?
• How does relevant revenue affect short-term decision making?

Related terms

Incremental Revenue: The additional income generated from choosing one option over another.

Opportunity Cost: The potential benefit lost when one alternative is chosen over another.

Sunk Cost: Past expenses that cannot be recovered and should not influence current decisions.