Relevant Cost

AAA

DEFINITION of 'Relevant Cost'

A managerial accounting term that is used to describe costs that are specific to management's decisions. The concept of relevant costs eliminates unnecessary data that could complicate the decision-making process.

INVESTOPEDIA EXPLAINS 'Relevant Cost'

Relevant costs are decision specific, meaning that a relevant cost may be important in one situation but irrelevant in another. Examples of when management uses relevant costs can be seen when it is determining whether to sell or keep a business unit, make or buy an item, or accept a special order.

RELATED TERMS
  1. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. ...
  2. Irrelevant Cost

    A managerial accounting term that represents a cost, either positive ...
  3. Capacity Utilization Rate

    A metric used to measure the rate at which potential output levels ...
  4. Activity-Based Costing - ABC

    An accounting method that identifies the activities that a firm ...
  5. Variable Cost

    A corporate expense that varies with production output. Variable ...
  6. Fixed Cost

    A cost that does not change with an increase or decrease in the ...
Related Articles
  1. Active Trading Fundamentals

    Evaluating A Company's Management

    Financial statements don't tell you everything about a company's health. Investigate the management behind the numbers!
  2. Options & Futures

    Advanced Financial Statement Analysis

    Learn what it means to do your homework on a company's performance and reporting practices before investing.
  3. Investing Basics

    When do companies publish P&L statements?

    Understand what a company's P&L statement represents, and find out when companies traditionally publish these statements.
  4. Active Trading Fundamentals

    What is liquidity management?

    Take a look at the different definitions of liquidity, and find out how investors and businesses attempt to reduce exposure to liquidity risk.
  5. Fundamental Analysis

    What is the difference between operating income and revenue?

    Understand the definitions of revenue and operating income, how they are calculated and interpreted, and how operating income is derived from revenue.
  6. Fundamental Analysis

    What is the difference between gross margin and gross profit?

    Understand the difference in definitions between gross margin and gross profit, and learn what each represents as a metric of a company's profitability.
  7. Fundamental Analysis

    What is the difference between market capitalization and enterprise value?

    Understand the basics of market capitalization and enterprise value, how they measure company value and how they differ in calculation and precision.
  8. Fundamental Analysis

    What is the difference between market capitalization and revenue?

    Understand the definitions of market capitalization and revenue, how each is calculated and how each reflects the value of a company.
  9. Fundamental Analysis

    What is the difference between operating income and net income?

    Understand the difference between operating income and net income, including the calculations and interpretations of each when reading a balance sheet.
  10. Fundamental Analysis

    What is the difference between operating income and EBITDA?

    Read about the major differences between earnings before interest, taxes, depreciation and amortization (EBITDA) and operating income in a company's financial health.

You May Also Like

Hot Definitions
  1. Risk-Free Rate Of Return

    The theoretical rate of return of an investment with zero risk. The risk-free rate represents the interest an investor would ...
  2. Scarcity

    The basic economic problem that arises because people have unlimited wants but resources are limited. Because of scarcity, ...
  3. Trust Fund

    A trust fund is a fund comprised of a variety of assets intended to provide benefits to an individual or organization. The ...
  4. Christmas Tree

    An options trading strategy that is generally achieved by purchasing one call option and selling two other call options at ...
  5. Christmas Club

    A short-term savings account that usually pays out the full account balance to its account holders once each year, right ...
  6. Boston Snow Indicator

    A market theory that states that a white Christmas in Boston will result in rising stock prices for the following year. For ...
Trading Center