Which one of the following is an example of a sunk cost?

Question

BlackTom AI · Accepted Answer

To determine which item is a sunk cost, we first recall that a sunk cost is money that has already been spent and cannot be recovered, and thus should not influence current or future decisions.
Option 1: "$750 paid last year to rent office space". This is money that was paid in the past and cannot be recovered. Regardless of what decision is made now, the $750 cannot be reversed, so it qualifies as a sunk cost.
Option 2: "$750 in lost sales because an item was out of stock." This is an opportunity cost, representing potential revenue that was forgone due to stockouts. It is not a cost already incurred; it reflects what could have been earned if the stock had been available.
Option 3: "$750 project that must be forfeited if another project is accepted." This is a foregone benefit or potential loss tied to a future decision (a relevant cost associated with choosing between projects), but it is not a past, unrecoverable expenditure. Hence, it is not a sunk cost.
Option 4: "$750 reduction in Product X revenue if a firm commences selling Product Y." This is an opportunity cost or a transfer effect on revenue, occurring as a consequence of a new decision, not a past cash outlay.
Option 5: "$750 increase in audio equipment sales if a store stops offering video equipment." This describes a potential future incremental revenue impact from a strategic decision, again not a sunk cost.
In summary, only the first option reflects a cost already incurred that cannot be recovered, fitting the definition of a sunk cost, while the others describe opportunities, foregone benefits, or future revenue changes related to decisions.

33:390:300:13 FINANCIAL MANAGEMENT Exam 2- Requires Respondus LockDown Browser

Which one of the following is an example of a sunk cost?

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