Ace the 2026 Accounting for Planning and Control Challenge – Score High and Take Control!

In decision making, we focus on relevant costs—those that differ between alternatives and that can be avoided if we choose one option over another. Fixed costs, by definition, do not change with the level of production, so they are usually not part of the incremental decision about how much to produce. However, if some fixed costs can be avoided by choosing not to produce (for example, cancelable leases or contracts that disappear when production stops), those avoidable fixed costs become relevant to the production decision.

So, saying fixed costs are relevant to the decision of whether to produce is true in the sense that they can influence the choice when they are avoidable, but not in the sense that all fixed costs always matter for every production decision. The key takeaway is to compare incremental costs and revenues and include any fixed costs only if they would be saved by the chosen alternative.