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CMA Foundation · Fundamentals of Business Economics and Management · Cost of Production

Which of the following is a sunk cost for a company deciding whether to continue a project?

A non-refundable feasibility study fee already paid is a sunk cost, because it has been spent and cannot be recovered whatever is decided. Future material and wages are avoidable, and forgone rent is an opportunity cost.

  1. ARaw material to be purchased next month
  2. BNon-refundable fee already paid for a feasibility studyCorrect
  3. CWages payable to workers hired in future
  4. DForgone rent from using own building

Explanation

A sunk cost is already incurred and cannot be recovered, so it does not affect future decisions. The study fee fits. Future materials and wages are avoidable, and forgone rent is an opportunity cost.

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