Relevant Costs Definition of relevant costs Sunk cost Spare capacity costs Opportunity costs

Relevant Costs Define the various options in any decision Consider any revenues or costs that are different between these options Ignore any revenues or costs that are the same between these options

Sunk Costs Any cost that cannot be avoided Past costs are sunk costs Committed future costs are also sunk costs Ignore sunk costs in any decision

Spare Capacity Costs These are costs associated with resources that are not currently being used They are not relevant if there is no alternative use They are relevant if there is an alternative use

Opportunity Costs If a resource can be used for some other purpose that generates revenue that revenue is an opportunity cost If there is an opportunity cost associated with a decision, that cost is relevant to the decision