Chapter 11
Relevant Costs for
Decision Making
McGraw-Hill /Irwin © The McGraw-Hill Companies, Inc., 2007
, Learning Objective
LO1
To identify relevant and
irrelevant costs and
benefits in a decision
11-2
,Cost Concepts for Decision Making
A relevant cost is a cost that differs
between alternatives.
2
1
11-3
, Identifying Relevant Costs
An avoidable cost can be eliminated (in whole
or in part) by choosing one alternative over
another. Avoidable costs are relevant costs.
Unavoidable costs are irrelevant costs.
Two broad categories of costs are never
relevant in any decision and include:
Sunk costs.
Future costs that do not differ between the
alternatives.
11-4
Relevant Costs for
Decision Making
McGraw-Hill /Irwin © The McGraw-Hill Companies, Inc., 2007
, Learning Objective
LO1
To identify relevant and
irrelevant costs and
benefits in a decision
11-2
,Cost Concepts for Decision Making
A relevant cost is a cost that differs
between alternatives.
2
1
11-3
, Identifying Relevant Costs
An avoidable cost can be eliminated (in whole
or in part) by choosing one alternative over
another. Avoidable costs are relevant costs.
Unavoidable costs are irrelevant costs.
Two broad categories of costs are never
relevant in any decision and include:
Sunk costs.
Future costs that do not differ between the
alternatives.
11-4
