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Relevant Cost

Relevant Cost

A relevant cost is one that is needed for decision making.

It costs John $40 to make his product by hand. He has the opportunity to buy a machine that cost $1500 that will reduce his cost to $25. When the product is finished it costs $8 to ship the product. When making the decision whether or not to buy this machine, the shipping cost of $8 is not relevant. Whether he makes the product by hand or makes it by machine, it will always cost $8 to ship. The relevant numbers are $40, $1500, and $25.

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