Avoidable cost
from class: Managerial Accounting Definition Avoidable cost is an expense that can be eliminated if a specific decision is made. These costs are relevant to short-term decision-making and help in determining the financial impact of different choices.
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Predict what's on your test 5 Must Know Facts For Your Next Test Avoidable costs are only incurred if a particular action is taken, making them relevant for decision-making. They differ from unavoidable costs, which cannot be eliminated regardless of the decision made. Examples include direct materials, direct labor, and variable overheads tied to a specific product or service. Identifying avoidable costs helps managers make informed decisions about discontinuing products or services. They play a crucial role in cost-benefit analysis during short-term planning. Review Questions What differentiates avoidable costs from unavoidable costs? How do avoidable costs influence short-term decision-making? Can fixed costs ever be considered avoidable? Give an example.
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