Short term decision – Relevant Cost

An avoidable cost is a cost that will not be incurred if you do something. For example, if you decide to close one department, then any fixed costs specific to that department will disappear and are therefore avoided.

An opportunity cost is lost income as a result of doing something. For example, if you are making a new product but it means you will have less sales of an existing product and will lost income as a result of $10,000. Then $10,000 is a cost of doing the new product.

This is all explained in my free lectures on short-term decision making. The lectures are a complete free course for Paper PM and cover everything needed to be able to pass the exam well.