Generally speaking, variable costs are more relevant to production decisions than fixed costs. Therefore, in most straightforward instances, fixed costs are not relevant for production decision, and incremental costs, or variable costs, are relevant for these decisions.
Are committed costs relevant?
Relevant costing assigns future costs and revenues to the decision being made. Unavoidable (committed) costs – those costs which will be incurred/cannot be avoided regardless of the decision. The difference between these and sunk costs is the time at which the costs are incurred.
What is the difference between relevant and irrelevant costs?
An irrelevant cost is a cost that will not change as the result of a management decision. However, the same cost may be relevant to a different management decision. Consequently, it is important to formally define and document those costs that should be excluded from consideration when reaching a decision.