ACCA Applied Knowledge · Business and Technology · Financial information provided by business
A hotel's accountant wants to know whether closing one restaurant would save the cost of the head chef's salary, which is a fixed cost that would be saved only if the restaurant closed. Which cost term best describes the salary in this decision?
The salary is an avoidable cost, because it would no longer be incurred if the restaurant closed. A sunk cost is already spent and unchangeable, and an opportunity cost is a forgone benefit rather than a cost that can be saved.
- AAvoidable costCorrect
- BSunk cost
- COpportunity cost
Explanation
A cost that would not be incurred if a particular decision were taken, here closing the restaurant, is avoidable. Sunk costs are past costs that cannot be changed. Opportunity cost is the benefit forgone from the next best alternative, not a saving in cash cost.
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