Question

Comment on the truth or falsehood of the following statement: "Any future cost is relevant in a business decision, and any historical data is irrelevant in a business decision."

Answer 1

The statement is true and correct.

Historical costs are those costs that will not change in future when you make one decision with the another. These are costs that will continue to happen irrespective of whether a new project taken or not. These costs are also known as sunk costs, which include rent, technology, Machinery etc. Sunk costs are those costs that cannot be changed because they are from prior decisions.

Where as Future costs are relevant in a business decision because the company will incur if the project is taken and it will not if project is not taken. Company need to evaluate the profitability of the business considering the future costs. So future costs are also known as relevant costs. These costs can be avoided if the project is not considered.