What is meant by sunk cost?

What is meant by sunk cost?

Sunk cost are all cost incurred or committed in the past that can not be changed by any decision made now or in the future. Sunk cost should not be considered in the decision-making. For example cost incurred on the research of the product will be irrelevant while making decision on whether to undertake production or not.

Sunk cost has been incurred and can not be reversed. Historical cost are sunk cost. They play no role in decision-making in the current period.

Sunk cost do not affect future cost and can not be changed by any current or future action, hence these costs are irrelevant in decision-making. For example spending on advertising during product launching is sunk cost for taking a decision on continuance of the product.

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  1. Pingback: Relevant cost – meaning. – ACCOUNTING CLASS

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