Accounting - Relevant Costing
Avoidable Cost
Can be avoided by undertaking a course of action. **Companies question how to measure unavoidable costs when switching to just-in-time manufacturing**
Sunk Cost
Cost from a previous committment and can't be recovered. **A lease payment incurred**
Incremental Cost
Cost of next unit in production.
Mixed Cost
Cost with a fixed and variable component. **Fixed is your monthly bill, Variable is the # of long distance calls you make**
Relevant Cost
Costs that change as a result of making a decision. **Suppose you buy a 100 ticket weeks ago and if you go you'll probably spend an extra 120 but you don't want to waste the money you already spent on the ticket. The total cost is 220 however the 100 is a sunk cost and not relevant in making the decision. The relevant cost is the 120 which is also an incremental cost**
Opportunity Cost
Maximum value forgone when a course of action is taken. **Few students consider the opportunity cost of four years working experience forgone during school**
Relevant Costing
The analysis of alternatives should include only revenues and expenses that differ between alternatives.
