Foundations of Economics: Relevant and Irrelevant Costs and Decisions

Foundation of Economics: Costs and Decisions
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Foundation of Economics: Costs and Decisions
Irrelevant costs are those that future business decisions will not change. Examples of irrelevant costs include committed costs, sunk costs, and overheads. These are costs that cannot be avoided and are not affected by decisions. On the other hand, relevant costs are unavoidable and are incurred whenever a business decision is made (Rahman, 2014). However, the two are also referred to as differential costs because they are not the same for all organizations. Each organization has its unique context and circumstances that shape its relevant and irrelevant costs.
In my short period as an intern in a local engineering firm, an ongoing construction project was halted because there had been revisions to the budget resulti...