RELEVANT COST Meaning and
Definition
-
Relevant cost is a term used in accounting and economics to describe a cost that is directly applicable to a specific decision-making scenario or problem. It refers to the expenses or expenditures that are relevant in determining the outcome of a decision or evaluating alternative options.
Typically, relevant costs are future costs that differ across alternatives being considered. They are crucial in making effective decisions as they can have a significant impact on the overall financial outcome. These costs can be either avoidable or unavoidable, fixed or variable, and can include items such as direct materials, direct labor, and other specific costs directly associated with the decision at hand.
The concept of relevant cost emphasizes the importance of considering only those costs that can be changed or influenced by a decision, while excluding those that are sunk (already incurred in the past) or irrelevant to the decision-making process. By focusing on relevant costs, decision-makers can make more informed choices by comparing the costs and benefits associated with various alternatives.
For example, in a make-or-buy decision for a company, relevant costs would include the direct materials, direct labor, and variable manufacturing overhead that would be incurred in making the product internally, as these costs would change depending on the decision made. On the other hand, irrelevant costs for this decision would include sunk costs (e.g., costs already incurred in setting up the current manufacturing process) or fixed costs that would remain the same regardless of the decision made.
Overall, understanding and evaluating relevant costs is crucial in sound decision-making and cost management, allowing businesses to maximize efficiency and profitability.
Common Misspellings for RELEVANT COST
- eelevant cost
- delevant cost
- felevant cost
- televant cost
- 5elevant cost
- 4elevant cost
- rwlevant cost
- rslevant cost
- rdlevant cost
- rrlevant cost
- r4levant cost
- r3levant cost
- rekevant cost
- repevant cost
- reoevant cost
- relwvant cost
- relsvant cost
- reldvant cost
- relrvant cost
- rel4vant cost
Etymology of RELEVANT COST
The word "relevant cost" does not have a specific etymology, as it is a combination of two words: "relevant" and "cost".
"Relevant" comes from the Latin word "relevans", which means "raising up" or "relieving". The adjective "relevant" emerged in English in the mid-16th century, referring to something that is connected or pertinent to a specific matter or situation.
"Cost" has its origins in the Latin word "constare", meaning "to stand together" or "to be settled". The noun "cost" entered the English language in the 14th century, representing the value or price of something.
When used together, "relevant cost" refers to the costs that are applicable or significant in a particular decision-making context or scenario.
