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Not all fixed costs are irrelevant when making decisions. While fixed costs do not change with production levels in the short term, they can still impact long-term strategic decisions and overall profitability. For instance, when evaluating whether to continue or discontinue a product line, fixed costs should be considered in the context of potential future revenues and contributions to fixed expenses. In summary, while fixed costs may not affect short-term operational decisions, they can be relevant in broader financial assessments.
What else can I help you with?
Variable costs are irrelevant whenever they do not differ among the alternatives at hand. do you agree?
Any cost whether variable cost or fixed cost is irrelevant if not different between alternatives at hand.
Are fixed costs always irrelevant?
No fixed costs are not always irrelevant. Some fixed costs may differ among the alternatives and hence will be relevant. e.g. When figuring the incremental cost of the more expensive car, the relevant costs would be the purchase price of the new car (net of the resale value of the old car) and the increases in the fixed costs of insurance and automobile tax and license.
What is the difference between overhead cost and fixed cost?
Fixed cost is a cost that does not typically vary on unit production. On the other hand overhead cost is the summation of all variable cost.
Why are historical costs irrelevant?
Historical costs are irrelevant because historical costs are sunk cost and no body can change any decision made in past so anything which can not be change due to underlying decision then that cost is irrelevant cost.
When fixed cost treated as relevant cost?
Fixed cost become relevent cost when a particular decision affects the fixed cost of production. For Example: Before Decision fixed cost $100 After Decision Fixed Cost $120 so in this case fixed cost also becomes relevent for decision making.
Variable costs are irrelevant whenever they do not differ among the alternatives at hand. do you agree?
Any cost whether variable cost or fixed cost is irrelevant if not different between alternatives at hand.
Are fixed costs always irrelevant?
No fixed costs are not always irrelevant. Some fixed costs may differ among the alternatives and hence will be relevant. e.g. When figuring the incremental cost of the more expensive car, the relevant costs would be the purchase price of the new car (net of the resale value of the old car) and the increases in the fixed costs of insurance and automobile tax and license.
Why depreciation on an existing asset is always irrelevant?
Depreciation is an invisible, non-cash cost and it is irrelevant when calculating the cash flow of the company which is the true indicator of whether the company is making a profit or not. Depreciation is also irrelevant because it is not truly realized until the asset is resold or scrapped at the end of its life. Recording it every year is consistent with the theory of conservatism when writing off costs. Depriciation is also irrelevant for the existing assets becoz it is fixed and fixed costs are always irrelevant unless they are incremental
What is the difference between overhead cost and fixed cost?
Fixed cost is a cost that does not typically vary on unit production. On the other hand overhead cost is the summation of all variable cost.
What is the distinction between relevant cost and irrelevant cost?
Relevant cost is that cost which is necessary for the underlying decision in decision making process while irrelevant cost is not necessary to be decision to be made.
Why are historical costs irrelevant?
Historical costs are irrelevant because historical costs are sunk cost and no body can change any decision made in past so anything which can not be change due to underlying decision then that cost is irrelevant cost.
When fixed cost treated as relevant cost?
Fixed cost become relevent cost when a particular decision affects the fixed cost of production. For Example: Before Decision fixed cost $100 After Decision Fixed Cost $120 so in this case fixed cost also becomes relevent for decision making.
How will you calculate cost of fixed assets?
Cost of fixed assets includes the cost of asset as well as all costs which are incurred to bring asset to working condition like carriage and installation cost as well.
Is capital a fixed cost?
capital is a fixed cost
What is all the alternatives to opportunity cost?
relevant cost may include fixed avoidable costs
Food cost fixed or variable?
The cost of all food is variable, depending on supply and demand.
Fixed cost variable cost equals?
Fixed cost and variable cost is equal to total cost as per following formula: Total Cost = Fixed Cost + Variable Cost
