Posted in Finance, Accounting and Economics Terms, Total Reads: 843
Definition: Sunk Cost
It is a type of cost which when incurred cannot be recovered. It is different than other types of costs such as future expenses like inventory cost, R&D expenses as sunk cost is something that has already happened.
Sunk costs are independent of any event that may occur in the future.
A firm XYZ purchases a building worth 5 Crore to carry out its production activities. This cost is independent of its future course of decision making and is forfeited in the case production has to be stopped hence it is a sunk cost for the firm.