Sunk Cost

What is a Sunk Cost?

A sunk cost is a cost which a business has already incurred and which cannot be recovered in the future. As these historical costs cannot change, they should not be taken into account when making future decisions.

Suppose for example, a business has already incurred significant costs in research and development for a new product. If it is concluded that the future revenues from the product will not cover the future costs, and the product will be loss making, then the business should ignore the sunk costs and cancel the future development of the product.

The tendency to keep going with future investment due to the substantial sunk costs is referred to as the sunk cost effect.

For further information see the Wikipedia definition.

Learn a new bookkeeping term

Random bookkeeping terms for you to discover.

Link to this Sunk Cost Definition

Click in the box to copy and paste this sunk costs definition link to your site.

Return to the Glossary

Sunk Cost March 23rd, 2016Team

You May Also Like


Related pages


find the future value of an annuitybasic bookkeeping principlesentry to replenish petty cashhow to work out the markup percentagesundry accounts definitionjob card format excel sheetcompound interest formula continuousstraight line method bond amortizationinventory systems in accountingpetty cash balance sheet examplemanual ledger formatapplied fixed overheadeconomic entity assumption definitionwhy prepaid expense is an assetreorder point examplecapital lease agreement templateaccrual to cash conversiondefinition of sundry creditorstvm calculator downloadcost ledger control account definitiondouble entry bookkepingsupplies expense formulaaverage debtors formulaincome statement percentageswhat is the future value of an annuityhow to calculate interest rate on excelformula for present value of annuityimprest systemdividend accrualuses of bank reconciliation statementperpetuity annuityexcel debt calculatorsales returns and allowances closing entryaccounting for royalty incomethe fundamental accounting equationincome statement single step formattrial balance debits and creditsbook keeping basicsasset disposal double entryfob freight definitiondiscounts on bonds payableexcel irr examplesalary expense journal entrypresent value of annuity dueprepaid rent balance sheetinventory reserve journal entrybookkeeping explainedasset depreciation calculatorimpairment intangible assetsdepreciation calculation in excelprovision for doubtful debts ifrsnet profit turnover ratio formularecording prepaid expensescompany bookkeeping templatesoverappliedtotal variable cost equationsmall business bookkeeping template excelhow to calculate dividends declaredformula for accounting equationnotes payable formulapurposes of a trial balance8 steps of accounting cycledepreciation entries for fixed assetscapital lease accounting exampleledger accounts templateaccounting ledger examplehow to calculate the contribution margin per unitvariable overhead ratefifo examplesvaluation allowance journal entryinterest rate formula compounded continuously