Entity: IRRELEVANT-COST
Irrelevant cost refers to a cost that remains constant regardless of management decisions and is not factored into decision-making processes.
IRRELEVANT-COST
Etymology
The term 'irrelevant cost' originates from the field of accounting and managerial decision-making.
Definition
An irrelevant cost is a cost that remains unchanged regardless of a specific management decision and, therefore, should not be considered when evaluating alternatives. These costs are typically sunk costs (expenses that have already been incurred and cannot be recovered) or fixed costs that would not be affected by a management decision.
Historical Context
The concept of irrelevant costs has been a fundamental principle in accounting and financial management, guiding decision-makers to focus on relevant costs that impact decision outcomes.
Cultural Significance
Understanding irrelevant costs is crucial in business decision-making processes, as it helps in identifying and eliminating non-essential expenses that do not influence the decision at hand.
Related Concepts
- Relevant costs
- Sunk costs
- Fixed costs
See Also
An irrelevant cost is a cost that remains unchanged regardless of a specific management decision and, therefore, should not be considered when evaluating alternatives.