Question

A company is considering building a new factory, which department is most likely going to be in charge of evaluating options to pay for the project and determine if it is a good investment or not?

Answer 1

Answer:

Explanation:

Sunk, or past, costs are monies already spent or money that is already contracted to be spent. A decision on whether or not a new endeavor is started will have no effect on this cash flow, so sunk costs cannot be relevant.

For example, money that has been spent on market research for a new product or planning a new factory is already spent and isn’t coming back to the company, irrespective of whether the product is approved for manufacture or the factory is built.

Committed costs are costs that would be incurred in the future but they cannot be avoided because the company has already committed to them through another decision which has been made.