Relevant Cost

Relevant Cost is an important concept in management accounting. It is one over which decisions are made and that is why it affects the decision-making process significantly. Often people get confused whether the cost is relevant or irrelevant. The simple test is to look out whether the incurring of the cost will change the decision or not.


Eric has to visit London on summer vacation and the tickets and hotel rooms have already been booked. Later, the marketing team of Eric informed him that a new customer in London is willing to meet Eric for business purpose. Here the cost of tickets and hotel rooms is irrelevant as it has already been incurred. So, the decision to visit London to meet customer is not relevant here.