What type of costs should only include expenses that can be eliminated by switching to a private vendor?

Avoidable costs refer to expenses that can be directly eliminated if a specific decision is made, such as contracting services to a private vendor instead of keeping those services in-house. These costs are essential for decision-making in budgeting and resource allocation as they help organizations determine potential savings when evaluating outsourcing options.

When considering whether to switch to a private vendor, an organization focuses on the costs it would no longer incur if the decision is made. For instance, salaries, benefits, and maintenance costs associated with in-house operations that would not be necessary if a private vendor is engaged represent avoidable costs.

This distinction is crucial in budgeting because it aids in assessing the financial implications of different operational decisions. Understanding avoidable costs allows organizations to make more informed choices that can lead to cost savings and increased efficiency.