Question

Opportunity costs are classified as ____ costs in project analysis. multiple choice question. irrelevant sunk relevant intangible

Answer 1

Opportunity costs are classified as sunk costs in project analysis. A sunk cost is a cost that has already occurred and cannot be recovered in the future. Sunk costs are costs that have already occurred and will remain the same regardless of the outcome of a decision-making; hence, they should not be addressed in capital budgeting.

Sunk costs are easy to get hung up on, especially when they are explicit costs. Direct payments paid to people in the course of running a business, such as labor, rent, and materials, are examples of explicit costs. Explicit costs that have already been incurred are sunk and no longer influence future decision-making.

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