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

the collection of accounts receivable is recorded by ahire purchase journal entrydeferred tax singaporepv annuity calculatordividend payout definitionno coupon bondcalculate effective interest rate on bondsexamples of t accounts debits and creditsmargin formula in excelbookkeeping workbookis accounts receivable debit or creditaccounts receivable days formulahow to calculate margin and markupdeferred tax liability calculatorlifo adjustmentnet profit to sales ratioeffective interest amortization tablejournal entries for buyback of sharesgeneral entries of accountingbills payable formatgarnished definitionmaterial requisition formatquick ratios formulaeom payment10 steps of the accounting cyclepva tableamortisation of goodwillhow to maintain ledger bookeconomic entity assumption definitionunit of production depreciation calculatordepreciation straight line formulaasset retirement obligation journal entry exampleexcel npv formulainventory systems in accountingtemplate accounting excelirr on excelaccounts payable and receivable interview questions and answerscalculating gross margin in excelcalculate pay back perioddisbursement journal templateannual depreciation under declining-balance methodbank reconciliation journal entriesaccounting ratios cheat sheetbookkeeping and accounting notesexample of cash flow statement analysisprepaid expenses meaningis indirect labor a period costintangible assets examplesdebit unearned revenuedupont formula calculatorjournal for accountingthe contribution margin income statementjournal entry for deferred tax assetrestaurant accounting chart of accountsbad debt expense on balance sheetwhat are efficiency ratioscalculating effective annual ratecalculating margin and markupdtl definitionprepayments and accrualssmall business expense templatehow to do vertical analysis of income statementfv pmt formulaar turnover formulaperpetuity examplesprintable accounting ledgerexample of cash disbursement journaltrade receivables control accountexcel paybackcontra asset examplerule 78 loan calculatorwhat is journal and ledger with exampletypes of transactions in transactional analysisformula for ending inventory