1. Relevant Costs Definition of relevant costs Sunk cost
Spare capacity costs
Opportunity costs

2. Relevant Costs Define the various options in any decision
Consider any revenues or costs that are different between these options
Ignore any revenues or costs that are the same between these options

3. Sunk Costs Any cost that cannot be avoided Past costs are sunk costs
Committed future costs are also sunk costs
Ignore sunk costs in any decision

4. Spare Capacity Costs
These are costs associated with resources that are not currently being used
They are not relevant if there is no alternative use
They are relevant if there is an alternative use

5. Opportunity Costs
If a resource can be used for some other purpose that generates revenue that revenue is an opportunity cost
If there is an opportunity cost associated with a decision, that cost is relevant to the decision