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+--- Thread: Incremental/Non-incremental/Sunk Costs (/showthread.php?tid=6034)
Incremental/Non-incremental/Sunk Costs - irfan kazim - 06-25-2009
AOA
what is the meaning of incremental cost non-incremental cost, relevant irrelevant cost, sunk cost. plz explain these terms with examples that make my concept more clear.
- Shahzad09 - 06-25-2009
WS
I suggest you take a look at comprehensive text on "Management Accounting" by Colin Drury.
- faisal_desperado - 06-26-2009
Irfan,
<b>Incremental cost</b> is that cost which arises due to producing extra units from the previous level, assume that a company increases its production from 100 units to 110 units for a specific product,in this case incremental cost will be the cost of producing 10 extra units.
However,If production increases from 100 units to 110 units but Fixed production cost remain same as earlier then it will be treated as Non Incremental Cost
<b>Sunk Cost</b> has already been defined,
http//www.accountancy.com.pk/forum/topic.asp?topic_id=7265
<b>Relevent and Irrelevent Cost</b> are related to a specific decision making, if the cost is relevent to the decision being taken then such cost will be treated as relevent cost, else , irrevelent cost.
For Example, if you want to travel from one city to another and you have two options to go there, either use your own car or take one from your friend, in both of the cases, Insurance Cost and Taxes of your own car will remain the same, hence these (Insurance & Taxes) are irrelevent cost for current decision , however Fuel cost (Petrol/ Diesel) & Tool tax will be relevent cost. (Source of Example Management & Cost Accounting by Colin Drury - Adapted)
Best Regards,