QS Study

Irrelevance of Future Cost: In addition to pat cost, some future costs may be irrelevant because they will be the same under all feasible alternatives. Irrelevant Cost is an avoidable cost is a cost that can be eliminated in whole or in part by choosing one alternative over another. These costs are those that will not change in the future when you make one decision versus another. These, too, may be safely ignored for a particular decision. The salaries of many members of top management are examples of expected future costs that will be unaffected by the decision at hand.

Other irrelevant future costs include fixed costs that will be unchanged by such considerations as whether machine X or Machine Y is selected. However, it is not merely a case of saying that fixed costs are irrelevant and variable costs are relevant. Variable costs can be irrelevant, and fixed costs can be relevant. For example, sales commissions might be paid on an order regardless of whether the order was tilled from plant G or plant H; variable costs are irrelevant whenever they do not differ among the alternative at hand, and fixed costs are relevant whenever they differ between the alternatives at hand.