Are fixed costs relevant to decision making?

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Ochoa10 0 Comments

Do you know if fixed costs should be included in investment appraisal?Is it only variable costs that are relevant for decision making or are fixed costs relevant too?

1 Answer

score 0 · Answer 1 · 2012-12-02T19:17:38+00:00

Yes and no! First of all, all costs that are not avoidable if the project is not selected are not relevant. This includes fixed or variable costs.

For example, if you will pay a fixed amount even if the project is not undertaken, then this cost is not relevant because it will be paid under any scenario.