Sunk Cost Examples

Sunk cost is that cost which has been already incurred and therefore one cannot recover these expenses after they have been spent which makes them irrelevant for a company while taking future projects. Examples of sunk cost would be building purchased by a company or purchase of furniture by a manufacturing concern. Another example would be outlay on purchase of machinery which is operating at full capacity; it does not include machineries which are operating at below their capacity because firm can always increase the capacity whenever they take some future project.

When a company is taking some decision regarding future projects then sunk costs are of no relevance for a company because any decision made by the company would not be dependent on these expenses as they have been already paid and that is why firms do not take into consideration these expenses when taking the decision regarding feasibility of future projects.

0 comments… add one

Leave a Comment