What is the Difference Between Avoidable and Unavoidable Cost?
🆚 Go to Comparative Table 🆚The difference between avoidable and unavoidable costs lies in the ability of a company to eliminate or control them.
Avoidable costs:
- Can be eliminated or reduced depending on the decision made by the company.
- Are usually direct and controllable.
- Examples include labor costs, packaging, and materials.
Unavoidable costs:
- Cannot be eliminated, even if the company takes certain actions like discontinuing a product line.
- Are generally more fixed in nature and indirect.
- Examples include rent, insurance, and other fixed expenses that cannot be easily avoided.
In summary, avoidable costs can be removed or reduced by making specific decisions, while unavoidable costs cannot be eliminated or controlled by the company's actions.
Comparative Table: Avoidable vs Unavoidable Cost
Here is a table comparing avoidable and unavoidable costs:
| Parameter | Avoidable Cost | Unavoidable Cost |
|---|---|---|
| Definition | Cost that can be avoided by refraining from performing a particular task. | Cost that will be incurred whether or not the work is completed. |
| Nature | Direct | Indirect |
| Level of Output | Affected | Not affected |
| Duration | Short-term | Long-term |
| Control | Controllable | Uncontrollable |
| Examples | Labor, capital, and raw material inputs; investment necessary to modify the firm's overall level of production. | Rent, insurance, taxes, depreciation, and opportunity costs. |
Avoidable costs are those that can be eliminated if a specific task or activity is stopped. They are mostly variable, and a firm can decide about their utility. On the other hand, unavoidable costs are those that must be incurred regardless of whether the activity is performed or not. They are often fixed and indirect in nature, meaning they cannot be easily traceable to the end product.
- Controllable vs Uncontrollable Cost
- Tangible vs Intangible Cost
- Variable vs Fixed Costs
- Relevant vs Irrelevant Cost
- Sunk Cost vs Opportunity Cost
- Direct vs Indirect Costs
- Price vs Cost
- Cost Benefit vs Cost Effectiveness
- Cost vs Expense
- Costly vs Expensive
- Fixed Cost vs Sunk Cost
- Absorption Costing vs Variable Costing
- Average Cost vs Marginal Cost
- Costing vs Budgeting
- Unit Price vs Unit Cost
- Opportunity Cost vs Marginal Cost
- Actual Cost vs Standard Cost
- Job Costing vs Contract Costing
- Implicit Cost vs Explicit Cost