Question: What Is Sunk Cost?

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What is sunk cost with example?

Regardless of what money is spent on, sunk costs are dollars already spent and permanently lost. Sunk costs cannot be refunded or recovered. For example, once rent is paid, that dollar amount is no longer recoverable – it is ‘sunk. Their car has gas, but the cash is spent and permanently lost; it is a sunk cost.

What is meant by sunk cost?

A sunk cost is a cost that an entity has incurred, and which it can no longer recover. Sunk costs should not be considered when making the decision to continue investing in an ongoing project, since these costs cannot be recovered.

Is salary a sunk cost?

Your sunk costs are everything you spend money on for your business that is not recoverable, including: Labor: Salaries and benefit costs, like health insurance and retirement fund contributions, are sunk costs, as soon as they are paid out, as there is ordinarily no prospect of cost recovery for these expenses.

How do you calculate sunk cost?

This is the purchase price of the equipment minus depreciation or usage. Total the cost of labor put into the project to-date. Add the cost of labor (which cannot be recovered), the cost of equipment that cannot be salvaged and the equipment sunk cost. The total is the sunk cost for the project.

What is the opposite of sunk cost?

It just means an expenditure that one cannot expect to recoup. The action item is, “Don’t throw good money after bad.” The opposite of a sunk cost is an investment. A “sunk cost” is a cost that you have already incurred, and won’t get back.

Is education a sunk cost?

Pursuing a career because of an investment in education

The investment in education is now a sunk cost (in terms of time and money). However, once qualified, you find you don’t like the job and want to do something different like open up a cafe.