What is a Relevant Cost?

Question

What is a Relevant Cost?

Answer 1

hmm... I don't understand the question ...

Answer 2

Relevant costs — Relevant costs must be future costs and must differ between alternatives; the two conditions must be met simultaneously. The following costs are therefore relevant:


Differential costs — Difference in costs between two decision alternatives. Differential costs are the difference in all costs (necessitated by a decision) between two alternatives, whether they are variable or fixed.


Opportunity costs — The benefit forgone when an action is taken.

In contrast, sunk costs (that is, costs that have already been incurred) are never relevant to a decision.