Relevant and Irrelevant Costs

[MD. ABDUR ROUF]

The relevant cost is a cost appropriate in aiding to make specific management decisions. Business decisions involve planning for future and consideration of several alternative courses of action. In this process the costs which are affected by the decisions are future costs.Such costs are called relevant costs because they are pertinent to the decisions in hand. The cost is said to be relevant if it helps the manager in taking a right decision in furtherance of the company's objectives.

[kamruzzaman.bba]

An irrelevant cost is a cost that will not change as the result of a management decision. However, the same cost may be relevant to a different management decision. Consequently, it is important to formally define and document those costs that should be excluded from consideration when reaching a decision.

Sir, can we call irrelevant cost as sunk cost???