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Fixed costs are always relevant costs in decisions. TRUE OR FALSE

Fixed costs are always relevant costs in decisions.

TRUE OR FALSE

Business   Accounting   
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Answer #1

Answer- False

Fixed cost is relevant only when fixed cost is avoidable in nature. Unavoidable fixed cost is always considered irrelevant for decision makings such as make or buy, accepting orders , outsourcing etc.

Avoidable fixed is cost that can be reduced or eliminated if a particular option is selected. Say factory manager's salary will be saved if a component production is outsourced to an outside producer. Here manager's salary is a relevant cost, but rent of factory is not a relevant cost.

Irrelevant fixed cost is basically a cost that remains same in all alternative course of actions.

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