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Costing & Financial Management

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25 July 2008 What is relevent cost ? what is sunk cost ?
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CA Nallathambi Srinivasan

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CA Nallathambi Srinivasan (Expert)
25 July 2008 Sunk Costs are costs that have been incurred and which cannot be recovered to any significant degree.Since it is not considered for decision making purpose.

Relevant Costs are cost which is considered for Decision Making Purpose.

A cost that has been incurred and cannot be reversed. Also referred to as "stranded cost."

A worn-out piece of equipment bought several years ago is a sunk cost because the cost of buying it cannot be reversed.

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.
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