What are irrelevant costs?

Irrelevant costs are defined as costs that do not affect a decision because they remain the same irrespective of which alternative is chosen. These costs do not vary between the different options being considered, making them insignificant for the purpose of the decision-making process.

When evaluating different choices in business scenarios, it's crucial to focus on costs that vary between the alternatives, as these will directly impact the outcome of the decision. Therefore, costs that are consistent across options are termed irrelevant because they do not influence the comparative analysis of decision choices. By recognizing and excluding these costs from decision-making, businesses can make clearer, more effective choices based on relevant financial data.