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In economics and business decision-making, a sunk cost (also known as retrospective cost) is a cost that has already been incurred and cannot be recovered. [ 1 ] [ 2 ] Sunk costs are contrasted with prospective costs , which are future costs that may be avoided if action is taken. [ 3 ]
When some costs are sunk and some are not sunk, total fixed costs (TFC) equal sunk fixed costs (SFC) plus non-sunk fixed costs (NSFC) or TFC = SFC + NSFC. When some fixed costs are non-sunk, the shutdown rule must be modified. To illustrate the new rule it is necessary to define a new cost curve, the average non-sunk cost curve, or ANSC.
Capacity cost: The cost incurred by a company for providing production, administration and selling and distribution capabilities in order to perform various functions. These costs are normally fixed costs. Sunk cost: A cost already incurred, which cannot be recovered. Other costs
Here’s an example. The ABC Company makes widgets. The company has fixed costs of $10,000 per month. Each widget costs the company $3.00 to make, and it sells each widget for $5.00.
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From the traceability source of costs, sunk costs can be direct costs or indirect costs. If the sunk cost can be summarized as a single component, it is a direct cost; if it is caused by several products or departments, it is an indirect cost. Analyzing from the composition of costs, sunk costs can be either fixed costs or variable costs.
The most common types of costs that are factored into this decision include: [89] Fixed costs; Variable costs; Marginal cost; Average total cost; Sunk costs; The impact of short-run and long run costs are important in determining production in a certain firm . It is assumed some costs are fixed in the short-run and are thus considered "fixed ...