Page 40 - BA2 Integrated Workbook STUDENT 2018

Chapter 2

4.3 Non-relevant costs

 Sunk costs. These are past costs or historical costs which are not relevant in
decision making.

 Committed costs. These are future costs that cannot be avoided, whatever
decision is taken.

 Non-cash flows. These are costs which do not involve the flow of cash.

 Notional costs. These are costs that will not result in an outflow of cash either
now or in the future, for example sometimes the head office of an organisation
may charge a ‘notional’ rent to its branches.

 General fixed overheads. These are usually not relevant to a decision, unless
they change as a direct result of a decision being taken.

 Net book values. These are not relevant costs because like depreciation, they
are determined by accounting conventions rather than by future cash flows.

Illustrations and further practice

Now try TYU 5/TYU 6

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