Sunk Costs are costs that have already been incurred and can’t be in any way affected. The organization bears sunk costs regardless of what other possibility it will decide (e.g. completion of development or manufacture of the product, further financing of the development, etc.). Sunk costs shouldn’t be taken into account in current or future decisions.
Sunk costs in practice: The company invested in the development of a new product a certain amount. Now it turns out that for the calculated price the product is not salable. In deciding whether to make and sell and for how much, or whether the production never start, the development costs shouldn’t be taken into account. They have already been incurred and cannot be influenced.
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