Relevant Costs 1

Question 1

Define “sunk costs”.

Answer 1

These are costs that are historical/in the past and are irrelevant for decision making going forward since they cannot be changed.

Question 2

When deciding whether to process a product further, what costs are relevant?

Answer 2

The only relevant costs are the differential future costs and benefits.

Question 3

Define “irrelevant costs”.

Answer 3

Future costs which do not differ between alternatives.

Question 4

Define “avoidable costs”.

Answer 4

Costs that can be eliminated by choosing one alternative over the other.