This implies that avoidable costs come with two possibilities - complete negation and partial negation. Reallocation is another means of dealing with such costs.
Unavoidable cost can be defined as the inevitable cost. No venture can prosper without assigning a vital portion of the budget to unavoidable costs.
Comparison Table Between Avoidable Cost And Unavoidable Cost
|Parameters of Comparison||Avoidable Cost||Unavoidable Cost|
|Definition||It is defined as the cost that can be saved by not indulging in a specific task.||It is defined as the cost that will be incurred mandatorily, whether the task is performed or not.|
|Duration||They are helpful only in the short run.||The prospects of unavoidable costs pay in the long run.|
|Relevance in Budget||It has high relevance since reducing expenditures is possible.||The budget is not affected by the unavoidable costs in any way.|
|Other Subdivisions||Fixed costs and variable costs are types of avoidable costs.||Sunk costs are akin to unavoidable costs.|
|Alternative Options Available||Some cheap alternatives can substitute avoidable costs.||No alternatives are available for cutting down on unavoidable costs in any way.|
What is Avoidable Cost?
Avoidable cost is that amount which the company can save by canceling the cause that leads to that particular expenditure. This is easier said than done since most companies take avoidable and unavoidable costs together while calculating the expenditure.
Avoidable cost and some related expenditure parameters can easily be controlled by switching to alternatives. On the other hand, stricter policy regulations might also help in case the economy is down at a particular point in time.
Avoidable cost is mainly of two types - fixed costs and variable costs. Fixed costs stay unaffected irrespective of the modifications made in the production capacity or other factors.
What is Unavoidable Cost?
Unavoidable cost means that expenditure which a company has to incur irrespective of alternatives of policy changes. No other solution is available since these costs are crucial to the existence of the firm and also aid in smooth functioning.
This notion leads many ventures to begin slowly since the natural resources are not adequate to sustain the workers until the new venture reaches breakeven. Once that point of optimum production is reached, the unavoidable costs become a normal part of the budget.
Unavoidable costs can be compared to the salary that is predesignated for managers. On the other hand, sunk costs also play a crucial role. Since they have already been spent, there is no possible mode of recovery.
Main Differences Between Avoidable Cost And Unavoidable Cost
- The further broad classifications of avoidable cost are fixed and variable. Sunk cost is a type of unavoidable cost.
- Avoidable cost has greater alternatives than unavoidable costs.
If the calculations do not match the actual data, one should focus more on the documentation process. Choosing between avoidable and unavoidable costs might be based on immediate necessities as well as long-term benefits.
Gratification also plays an important role in the maintenance of a fixed financial policy. The size of a venture does not matter as far as the income and expenditure are balanced monthly. In case of emergencies and some unavoidable purchases, the budget might get disturbed beyond imaginable proportions.
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