relevant cost

An expected future cost that varies with alternative courses of action. Decision making involves choosing between such alternatives and to make the best choice a manager needs to identify the future cash flows for each decision. Costs that have already been incurred as a result of past decisions (sunk costs) are not relevant for decision making. Likewise, a future cost that will not be changed by a decision is irrelevant to that decision. See differential analysisAn understanding of relevant costs is particularly important for the following types of decision:
• special selling-price decisions;
• product-mix decisions when capacity constraints exist;
• decisions on replacement of equipment;
• outsourcing (make or buy) decisions;
• decisions on whether to drop a product or close a department.

Big dictionary of business and management. 2014.

Look at other dictionaries:

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