sunk cost

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Sunk Costs

Money that has already been spent. Sunk costs are important because a company may use, for example, an old piece of equipment to make a new product. In this case, sunk costs are positive because no further investment is required. On the other hand, a sunk cost may be negative; for example, that old piece of equipment may break down after its warranty has expired. This means that the owner will not recover the costs no matter what happens.

sunk cost

A past outlay or loss that cannot be altered by current or future actions.

sunk cost

the cost of durable and specific assets such as plant and machinery which cannot be used for other purposes or easily be resold. Where sunk costs represent a high proportion of a firm's total costs the firm may be ‘locked in’ to its existing products and markets, the sunk costs forming a BARRIER TO EXIT from the market. Since such specific assets have little alternative use they have no OPPORTUNITY COST and so naturally should not enter into management decision-making. Consequently in MAKE-OR-BUY DECISIONS the firm need not consider the sunk costs involved in making products but only the additional production costs as opposed to buying from outside suppliers.
References in periodicals archive ?
The proposed model reduces to the TOC when all labor and overhead are committed costs in the short run.
The flexible and committed costs were divided by the set-up activity's practical capacity to determine a flexible and committed cost driver rate of $50 and $450 per set-up hour, respectively.
Engineering's expected total, flexible, and committed costs were divided by the activity's practical capacity of 1,000 drawings to derive total, flexible, and committed cost driver rates of $1,200, $180, and $1,020 per drawing, respectively.
First, the operational ABC model reduces to the TOC when all labor and overhead resources are committed costs.
In effect, over an extended time horizon, a company s committed cost is subject to management control.
Under ABC, an activity's resources are disaggregated into either flexible or committed cost (Cooper and Kaplan, 1992).
In the short run, an activity's committed cost is a sunk cost that is irrelevant for decision making.
The flexible and committed assembly overhead was divided by the assembly activity's practical capacity to derive a flexible and committed cost driver rate of $8 and $16 per machine hour, respectively.
The difference between the two rates is the committed cost driver rate for assembly.
The rating upgrade reflects the fundamental value of an essential electrical service with very little business risk compared to greater competition and uncertainty associated with electricity generation, and the member systems' 1996 reaffirmation to pay all of GTC's committed costs via joint and several take-or-pay commitments, extending through the year 2025.
Support for the ratings center on the member systems contractual pledge to pay all of OPC's committed costs via long-term agreements which extend through the year 2025.
FieldExpress -- FieldExpress is a detachable job-site accounting program that provides the user with accurate job forecasting capabilities, electronic data feeds from remote job sites and company- wide committed costs and forecasting.