Question

Are sunk cost always irrelevant in incremental analysis? Explain your answer and use examples.

Answer 1

Sunk costs are the costs which are already incurred so they are irrelavent for making current decisions.

Sunk costs are also irrelavent in making incremental analysis as they are already expended regardless of any decision.when a company is making a decision between two machineries the cost of disposal of existing machinery is irrelavent.

Examples of sunck cost are:

Research and development expenses.

Training costs.

Money spent years ago on purchasing an equipmemt,land etc.