AVOIDABLE COST Meaning and
Definition
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Avoidable cost is a term used in economics and accounting to describe expenses that can be eliminated or avoided by making a different decision or taking an alternative course of action. These costs are not essential or necessary for the operation of a business or the completion of a project, and therefore, can be eliminated without negatively affecting the desired outcome.
Avoidable costs are often contrasted with unavoidable costs, which are expenses that cannot be eliminated regardless of the decision or action taken. While unavoidable costs are typically associated with fixed expenses such as rent, utilities, and overhead, avoidable costs are more flexible and can be controlled to some extent.
In business, managers and decision-makers analyze avoidable costs to determine the impact of different choices on the organization's financial performance. By identifying these costs, businesses can identify opportunities to reduce or eliminate unnecessary expenses and improve their overall efficiency.
For example, in manufacturing, avoidable costs may include overtime wages, excess inventory holding costs, or the use of more expensive materials. By addressing these avoidable costs, businesses can optimize their production process and reduce expenditure, ultimately improving profitability.
Overall, the concept of avoidable costs highlights the importance of analyzing expenses and finding ways to minimize unnecessary spending, ultimately contributing to the financial success of an organization.
Etymology of AVOIDABLE COST
The word "avoidable" comes from the Latin word "evitābilis", which means "able to be avoided". It is derived from the verb "evitare", which means "to avoid" or "to shun".
The word "cost" has its roots in the Old French word "coste", which means "side" or "rib". It later evolved in Middle English to mean "price" or "expense".
The combination of "avoidable" and "cost" in the term "avoidable cost" expresses the concept of expenses or expenditures that can be prevented or avoided.
