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What are the Different Types of Relevant Costs?

There are different types of relevant costs in a business organization. They are:-

• Avoidable Cost: Avoidable cost includes all the costs that can be prevented if a particular ruling is not enforced. It also speaks of all the costs relevant for decision making.
• Future Cash Flows: Future cash flows indicate the cost that will be incurred in coming future because of a decision.
• Incremental Cost: Accumulative costs are the costs connected to several possibilities.
• Opportunity Cost: Opportunity cost is the sacrifice of the inflows of cash because of a decision.

What is Meant by Irrelevant Cost?

Irrelevant cost is the cost that is detached from numerous determinations or options. Irrelevant costs are not considered while making a decision. Irrelevant costs can be divided into several parts. They are:-

• Sunk Cost: Sunk costs include all the costs or expenditures that have already been incurred. Sunk cost is insignificant because it does not influence forthcoming cash flows.
• Overheads: Expenditures or overheads, general or managerial, do not impact the alternative judgments, hence irrelevant.
• Non-cash Expenses: Non-cash expenditures like depreciation are unimportant because they cannot manipulate the cash flow of a business firm.

Differences Between the Relevant Cost and the Irrelevant Cost

Relevant Cost case study assignment help highlights the key distinctions between the relevant cost and the irrelevant cost. This gives a balanced outlook on the overall assignment. The main differences between relevant cost and irrelevant cost are:-

• Nature: Relevant cost is flexible whereas irrelevant cost is fixed in nature.
• Tier: The relevant cost is generally incurred by the lower-tier of management whereas the irrelevant cost is commonly incurred by the top management.
• Priority: The priority of the relevant cost is daily or routine activities whereas irrelevant cost is focused on irregular activities.
• Scope: The scope of the relevant cost is restricted to a specific division whereas the scope of the irrelevant cost is related to organizational-wide activities.
• Effect on Cash Flow: The relevant cost can affect the future cash flow whereas the irrelevant cost cannot influence the cash flow in a business organization.
• Getaway: The relevant can be avoided but the irrelevant cost cannot be averted.
• Impact of a New Decision: The relevant cost can be influenced by a new decision but the irrelevant cost does not get affected by the new decision.

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