Sunk Cost

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Description

A sunk cost is a cost that has already been incurred and that cannot be changed by any decision made now or in the future. Because sunk costs cannot be changed by any decision, they are not differential costs. And because only differential costs are relevant in a decision, sunk costs should always be ignored.

Sunk costs are different from fixed costs, because sunk costs are costs that will be incurred regardless of what decision is made.

Concept Prerequisite

Wikipedia Reference

http://en.wikipedia.org/wiki/Sunk costs

Learning Material

Covered in Topic(s)

 
Cost Terms Concepts and Classification
Integer Programming
Making Capital Investment Decisions
Relevant Costs for Decision Making