Question

A sunk cost is:A) a cost that may be saved by not adopting an alternative.B) a cost that may be shifted to the future with little or no effect on current operations.C) a cost that cannot be avoided because it has already been incurred.D) a cost which does not entail any dollar outlay but which is relevant to the decision-making process.

Answer 1

Answer: The correct answer is "C) a cost that cannot be avoided because it has already been incurred.".

Explanation: Sunk costs are those costs that have already been incurred and cannot be recovered in the future.

Example: Suppose a company wants to launch a new product for which it has commissioned a market study whose cost is $ 5000.

Once the market study is obtained, the company is not convinced that the product will be successful. When analyzing the decision The first thing to recognize that the expenses incurred ($ 5000) are sunk costs, will not be recovered and therefore should not influence the decision about the product.