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.