Write down the meaning of avoidable cost.

Avoidable cost refers to those costs that can be eliminated (avoided) by taking a specific action, such as discontinuing a product line, department, or project. These costs are relevant in decision-making because they directly impact the profitability of a particular course of action. For example, if a company decides to close a factory, the costs of running that factory—such as direct labor, direct materials, and variable overhead—can be avoided. However, fixed costs like rent or top management salaries may not be avoidable in the short term, even if the factory is closed. Avoidable costs are crucial in make-or-buy decisions, product discontinuation, and special order analysis because they help managers assess the true financial impact of their choices.