A comprehensive article on avoidable costs, their significance in decision-making, different types, mathematical models, practical examples, and key considerations.
Relevant cost refers to an expected future cost that varies with alternative courses of action. Understanding relevant costs is crucial for various business decisions such as special selling-price decisions, product-mix decisions, equipment replacement, outsourcing, and decisions on dropping a product or closing a department.
Incremental Analysis is a decision-making method that utilizes the concept of relevant cost, also known as the relevant cost approach or differential analysis. This method involves gathering all costs associated with each alternative, dropping sunk costs, ignoring costs that do not differ between alternatives, and selecting the best alternative based on the remaining cost data.
