Sunk costs are costs that A costs that cannot be recuperated

Sunk costs are costs that:

A. costs that cannot be recuperated after they have been paid.

B. costs that change as the output changes.

C. costs that stay the same as the output changes.

D. none of the above.

Solution

Sunk cost is the cost which has already been incurred and paid. So it cannot be recovered or recouped by taking decisions. In other words the cost has nothing to do with the decisions taken. Suppose a company has undertaken some research work. Already work has been done and money has been paid. Now the results of research is analyzed and decision should be taken about its implementation. Here Findings of the research will be either accepted for implementation or will be rejected. but whatever decision is taken, research cost has nothing to do. It has already been incurred and it cannot be recovered. so research expenses is a sunk cost.

Answer: option A is correct.