Question

Irrelevant costs are costs that do not affect short−term decisions.

Answer 1

Solution. An organization exists to do business to earn profit and sustain in long run by offering to society. In order to operate it lays plans and takes decisions to evaluate its operations. Costs are incurred to generate revenues by an organization. Irrelevant costs are one which are independent of decisions as such costs are considered to be sunk costs and does not alter with a decision. So, the above given statement in question is true as only relevant costs form a part of short term decisions to maximize short term profits and aims to eliminate avoidable costs for example opportunity costs, incremental costs, etcetera.