A more thorough explanation:

Definition: An avoidable cost is a cost that can be eliminated or reduced if a certain decision is made or action is taken. It is a cost that can be avoided if a particular activity is not performed or if production is held below a certain level so that additional expenses will not be incurred.

Example: Let's say a company is considering expanding its production line to include a new product. The cost of the new equipment and materials needed to produce the new product is $100,000. However, the company already has excess inventory of another product that is not selling well. If the company decides to produce the new product, it will have to reduce the price of the existing product to clear the inventory, resulting in a loss of $50,000. In this case, the avoidable cost is $100,000, as the company can avoid this cost by not producing the new product and instead focusing on selling the existing product.

Another example of avoidable cost is when a company decides to outsource a particular service instead of hiring an in-house team. By outsourcing, the company can avoid the cost of hiring and training new employees, as well as the cost of providing benefits and office space.

These examples illustrate how avoidable costs can be reduced or eliminated by making certain decisions or taking specific actions. By identifying avoidable costs, companies can make more informed decisions and improve their profitability.