Legal Definitions - avoidable cost

An avoidable cost is an expense that a person, business, or organization can eliminate or prevent by choosing not to undertake a particular activity, project, or decision. If the activity ceases or a different course of action is taken, this cost would no longer be incurred.

Here are some examples to illustrate this concept:

• Example 1: Business Operations

  A small bakery produces specialty cakes and also offers a catering service for corporate events. The catering service requires hiring additional part-time staff specifically for event setup and delivery, and purchasing specialized disposable serving ware. If the bakery decides to discontinue its catering service to focus solely on cakes, the wages for the part-time catering staff and the cost of the specialized serving ware would be avoidable costs. These expenses are directly tied to the catering activity and would cease if that activity stops.

• Example 2: Personal Finance

  A family has a gym membership that costs $75 per month, but due to busy schedules, they haven't used it in six months. The $75 monthly fee is an avoidable cost. If the family decides to cancel the membership, they would no longer incur that $75 expense each month, thereby avoiding the cost.

• Example 3: Project Management

  A construction company is planning to build a new office complex. One phase of the project involves using a specialized, high-cost crane for a particular lifting task. However, engineers discover an alternative method using a less expensive, standard crane that would take slightly longer but achieve the same result. The additional rental fees and specialized operator costs associated with the high-cost crane are avoidable costs if the company chooses the alternative method. By making a different decision about the equipment, they can prevent these specific expenses.