11.8: Introduction to Cost Types
What you’ll learn to do: Explore cost types that affect decision making
There are a variety of costs that affect how managers make decisions. Whether a cost is relevant or irrelevant is important as we start to look at how we decide which costs we need to pay attention to.
Relevant costs are those that are relevant to the decision. While irrelevant costs won’t change, regardless of which decision we make. We can ignore irrelevant costs when we start the decision making process. This can save a ton of time when going through the decision making process. Also, really bad decisions can be made if irrelevant costs are kept in the mix while analyzing the data.
It is important, as a manager, that you understand which costs are relevant to a particular decision and which are not. We will be discussing avoidable costs, sunk costs and opportunity costs, determining which ones we need to consider in a variety of decisions.
Hopefully, this module will help you to make good financial decisions not only in your business life, but your personal life as well!
Are you ready?