Avoidable Cost

What is an 'Avoidable Cost'

An avoidable cost is an expense that will not be incurred if a particular activity is not performed. Avoidable cost refers to variable costs that can be avoided, unlike most fixed costs, which are typically unavoidable.While avoidable costs are often viewed as negative costs, they may be necessary to achieve certain goals or thresholds.

BREAKING DOWN 'Avoidable Cost'

Avoidable costs are expenses that can be avoided if a decision is made to alter the course of a project or business. For example, a manufacturer with many product lines can drop one of the lines, thereby eliminating associated expenses such as labor and materials. Corporations looking for methods to reduce or eliminate expenses often analyze avoidable costs associated with underperforming or non-profitable product lines.

RELATED TERMS
  1. Variable Cost

    A corporate expense that varies with production output. Variable ...
  2. Cost Accounting

    A type of accounting process that aims to capture a company's ...
  3. Production Cost

    A cost incurred by a business when manufacturing a good or producing ...
  4. Direct Cost

    A price that can be completely attributed to the production of ...
  5. Flexible Expense

    An expense that is easily altered or avoided by the person bearing ...
  6. Full Costing

    A managerial accounting method that describes when all fixed ...
Related Articles
  1. Entrepreneurship & Small Business

    What Are The Different Types Of Costs In Cost Accounting?

    Cost accounting measures several different types of costs associated with a company’s production processes.
  2. Markets

    Understanding Marginal Cost of Production

    Marginal cost of production is an economics term that refers to the change in production costs resulting from producing one more unit.
  3. Investing

    Explaining Capitalized Cost

    A capitalized cost is an expense associated with a fixed asset that is added to the basis of that asset and expensed over its depreciable life.
  4. Markets

    Understanding Cost of Revenue

    The cost of revenue is the total costs a business incurs to manufacture and deliver a product or service.
  5. Investing

    What is Incremental Cost?

    Incremental cost is the added cost of manufacturing one more unit.
  6. Investing

    Explaining Cost Control

    For a business, cost control entails managing and reducing expenses.
  7. Retirement

    The Hidden Costs Of Investing In Mutual Funds

    Find the hidden fees in your portfolio, so that you can increase your rate of return.
  8. Markets

    What is the Cost of Funds?

    Cost of funds is the interest cost financial institutions pay to use the funds they deploy in their business.
  9. Investing

    Explaining Prime Cost

    Prime cost is a way of measuring the total cost of the production inputs needed to create a given output.
  10. Investing

    Explaining Cost Of Capital

    Cost of capital is the cost of funds used to finance a business.
RELATED FAQS
  1. How are fixed costs treated in cost accounting?

    Learn how fixed costs and variable costs are used in cost accounting to help a company's management in budgeting and controlling ... Read Answer >>
  2. What is the difference between direct costs and variable costs?

    Learn about variable costs and direct costs, how direct costs and variable costs are classified and the differences between ... Read Answer >>
  3. Is it better for a company to have fixed or variable costs?

    Understand the difference between a fixed cost and a variable cost, and learn how a company benefits from having more fixed ... Read Answer >>
  4. How do fixed and variable costs each affect the marginal cost of production?

    Learn about the marginal cost of production, how to calculate the marginal cost, and how fixed costs and variable costs affect ... Read Answer >>
  5. What are the different types of costs in cost accounting?

    Learn about the different types of costs associated with cost accounting, such as direct, indirect, fixed, variable and operating ... Read Answer >>
  6. What are the differences between period costs and product costs?

    Find out why GAAP separates all company expenses into either period or production costs and how this impacts the way expenses ... Read Answer >>
Hot Definitions
  1. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  2. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  3. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  4. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
  5. Weighted Average Life - WAL

    The average number of years for which each dollar of unpaid principal on a loan or mortgage remains outstanding. Once calculated, ...
  6. Real Rate Of Return

    The annual percentage return realized on an investment, which is adjusted for changes in prices due to inflation or other ...
Trading Center