Main articles: Management Accounting, Capital budgeting, Engineering economics (civil engineering), Cost accounting, and Microeconomics
A relevant cost (also called avoidable cost or differential cost)[1] is a cost that differs between alternatives being considered.[2] In order for a cost to be a relevant cost it must be:
Future
Cash Flow
Incremental
It is often important for businesses to distinguish between relevant and irrelevant costs when analyzing alternatives because erroneously considering irrelevant costs can lead to unsound business decisions.[1] Also, ignoring irrelevant data in analysis can save time and effort.
Types of irrelevant costs are:[3]
Sunk costs[4]
Committed costs
Notional or Non cash costs (e.g depreciation and amortization)
^ abGarrison, Ray H., Noreen, Eric W., Brewer, Peter C. (2007). Managerial Accounting 12th Edition (p. 578) New York, NY: McGraw-Hill/Irwin. ISBN 978-0-07-352670-6.
^Williams, Jan R., Haka, Susan F., Bettner, Mark S., Meigs, Robert F. (2002). Financial and Managerial Accounting: The Basis for Business Decisions (p. 848) New York, NY: McGraw-Hill/Irwin. ISBN 0-07-239688-1.
^Accounting Tools: What is an irrelevant cost?
^Dennis Caplan. "Management Accounting: Concepts and Techniques". Oregon State University College of Business. Retrieved 2010-05-08.
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