What is an Unavoidable Cost?

An unavoidable cost is an expenditure for which there is a firm spending commitment in the short term. Because of the commitment, it is not possible to sidestep the cost until the commitment period has ended. This type of cost does not factor into short-term operational decisions, since it will not vary as a result of those decisions.

Examples of Unavoidable Costs

Here are several examples of unavoidable costs:

Rent payments. Payments for facilities or equipment leases must be paid as per the contract, even if the business is temporarily shut down.
Depreciation. Depreciation is a non-cash expense representing the wear and tear of equipment or buildings, and it continues regardless of production levels.
Property taxes. These taxes must be paid as long as a property is owned, regardless of whether the property is being used.
Insurance premiums. Policies like property, liability, or health insurance require regular payments that cannot be skipped or avoided in the short term.
Interest on loans. If a business has borrowed money, interest payments must be made according to the loan agreement.
Utility minimum charges. Even if operations are halted, businesses may still incur minimum charges for utilities like water, electricity, or internet services.
Maintenance of essential services. This includes costs related to ensuring basic upkeep, such as security services for facilities or minimal equipment maintenance.
Long-term purchase commitment. This is a contractual obligation to buy something for an extended period of time. An example is a 20-year deal by a utility to purchase coal from a mining company.