read more may be avoided by deciding not to perform a certain activity. Thus, incurring an expense Expense An expense is a cost incurred in completing any transaction by an organization, leading to either revenue generation creation of the asset, change in liability, or raising capital. read more, which refers to the expenses already incurred. However, this does not imply that such costs will be irrelevant for an extended period and may become relevant if the business environment or priorities change. read more or irrelevant costs Irrelevant Costs Irrelevant costs are those that are not useful or are not considered when a company makes a business decision. The opposite of relevant costs is sunk cost Sunk Cost Sunk costs are all costs incurred by the firm in the past with no hope of recovery in the future and are not considered while making any decisions since these costs will not change regardless of the decision's outcome. Businesses use relevant costs in management accounting to conclude whether a new decision is economical.Ī particular cost may be relevant for one situation but irrelevant for another. This concept is useful in eliminating unnecessary information that might complicate the management’s decision-making process. Relevant cost is a management accounting term that describes avoidable costs incurred when making specific business decisions.
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