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Sunk Costs

A sunk cost is a cost that has already been incurred and cannot be recovered, such as rent, marketing expenses, or equipment purchases. Businesses do not factor sunk costs into future financial analysis because the money is gone and will not change. However, understanding sunk costs allows companies to better prepare for and budget unavoidable costs to prevent additional unnecessary expenses.

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41 views1 page

Sunk Costs

A sunk cost is a cost that has already been incurred and cannot be recovered, such as rent, marketing expenses, or equipment purchases. Businesses do not factor sunk costs into future financial analysis because the money is gone and will not change. However, understanding sunk costs allows companies to better prepare for and budget unavoidable costs to prevent additional unnecessary expenses.

Uploaded by

Ella
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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What is sunk cost?

A sunk cost refers to a cost that has already occurred and has no potential for recovery
in the future. For example, your rent, marketing campaign expenses or money spent on
new equipment can be considered sunk costs. A sunk cost can also be referred to as a
past cost. Businesses don't typically consider sunk costs in their financial analysis for
the future because these costs have already happened, they can't be recovered and
they won't change. Despite this, it's beneficial to understand how sunk costs work in
order to prepare for them. The better you're able to prepare for a sunk cost and
potentially budget for it, the better you'll be able to avoid any additional costs.

Source: https://www.indeed.com/career-advice/career-development/sunk-cost-
definition-and-examples

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