Avoidable Cost vs. Unavoidable Cost — What's the Difference?
Edited by Tayyaba Rehman — By Fiza Rafique — Published on December 19, 2023
Avoidable Cost is to expenses that can be eliminated if an activity is discontinued. Unavoidable Cost is to fixed costs that remain even if an activity stops.
Difference Between Avoidable Cost and Unavoidable Cost
Table of Contents
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Key Differences
Avoidable costs are those expenses that a company can avoid if it discontinues an activity. In contrast, unavoidable costs are fixed expenses that the company incurs regardless of its activities.
Avoidable costs are typically variable and directly tied to specific business operations. Conversely, unavoidable costs are often fixed and remain constant irrespective of changes in business activities.
Avoidable costs can be cut without disrupting the core business functions, while unavoidable costs are integral to the business's ongoing operations and cannot be easily eliminated.
In decision-making, avoidable costs are considered when determining the viability of continuing an activity. Unavoidable costs, however, are often ignored as they will be incurred regardless of the decision.
Avoidable costs are flexible and can change with strategic decisions, while unavoidable costs are rigid and largely unaffected by short-term business changes.
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Comparison Chart
Nature
Variable, can change
Fixed, remains constant
Relation to Activity
Tied to specific activities
Incurred regardless of activity
In Decision Making
Considered in cost-benefit analysis
Often ignored as they remain constant
Flexibility
Can be eliminated or reduced
Cannot be easily altered
Example
Overtime wages
Rent or lease payments
Compare with Definitions
Avoidable Cost
Expenses that are not fixed and can be managed.
The seasonal promotion's advertising spend was an avoidable cost.
Unavoidable Cost
Costs that cannot be eliminated easily.
Depreciation of machinery was an unavoidable cost for the factory.
Avoidable Cost
Costs incurred only when engaging in certain actions.
Overtime payments were an avoidable cost when production was scaled down.
Unavoidable Cost
Fixed costs that persist regardless of activity.
The building's rent was an unavoidable cost for the business.
Avoidable Cost
Costs eliminated by stopping an activity.
The company's avoidable cost was the extra staffing on weekends.
Unavoidable Cost
Fixed charges that remain constant.
Annual software licensing fees were an unavoidable cost.
Avoidable Cost
Variable costs that can be cut when necessary.
The avoidable cost of the project included freelance consultant fees.
Unavoidable Cost
Expenses not directly tied to production levels.
The unavoidable cost of maintaining essential staff remained during the shutdown.
Avoidable Cost
Expenses directly linked to specific operations.
Marketing expenses were an avoidable cost for the discontinued product line.
Unavoidable Cost
Expenses incurred independent of operations.
The company's insurance premiums were an unavoidable cost.
Common Curiosities
Are unavoidable costs considered in cost-benefit analysis?
Unavoidable costs are often excluded from cost-benefit analysis since they remain constant irrespective of the business decision.
What is an avoidable cost?
An avoidable cost is an expense that a company can eliminate if a specific activity or operation is discontinued.
What is an unavoidable cost?
An unavoidable cost is a fixed expense that a company incurs regardless of its level of activity or operations.
Are salaries an avoidable cost?
Salaries can be an avoidable cost if they are tied to specific projects or activities that can be discontinued.
Is rent an unavoidable cost?
Rent is typically an unavoidable cost as it is a fixed expense necessary for the business's operation.
Can avoidable costs become unavoidable?
In some cases, avoidable costs can become unavoidable if they become essential to the core business functions.
Are unavoidable costs always fixed?
Unavoidable costs are generally fixed, but in some unique scenarios, they can have variable components.
Can reducing avoidable costs increase profitability?
Reducing avoidable costs can increase profitability by decreasing overall expenses.
Can avoidable costs affect decision-making?
Yes, avoidable costs are considered in decision-making, especially when evaluating the feasibility of continuing or discontinuing an activity.
How do companies manage avoidable costs?
Companies manage avoidable costs by monitoring and reducing expenses tied to specific activities or operations.
Is depreciation an unavoidable cost?
Yes, depreciation is typically an unavoidable cost as it is a fixed, non-cash expense related to assets.
Is interest expense an unavoidable cost?
Interest expense is generally an unavoidable cost, as it is tied to debt obligations that must be met regardless of business activities.
Are utility bills an avoidable cost?
Utility bills can be avoidable if they are tied to specific activities that can be ceased.
Can a business operate without incurring avoidable costs?
Yes, a business can operate without incurring avoidable costs, especially if it streamlines its operations.
Are unavoidable costs relevant in break-even analysis?
Unavoidable costs are relevant in break-even analysis as they contribute to the total fixed costs.
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Written by
Fiza RafiqueFiza Rafique is a skilled content writer at AskDifference.com, where she meticulously refines and enhances written pieces. Drawing from her vast editorial expertise, Fiza ensures clarity, accuracy, and precision in every article. Passionate about language, she continually seeks to elevate the quality of content for readers worldwide.
Edited by
Tayyaba RehmanTayyaba Rehman is a distinguished writer, currently serving as a primary contributor to askdifference.com. As a researcher in semantics and etymology, Tayyaba's passion for the complexity of languages and their distinctions has found a perfect home on the platform. Tayyaba delves into the intricacies of language, distinguishing between commonly confused words and phrases, thereby providing clarity for readers worldwide.
