Sunk Cost

AAA

DEFINITION of 'Sunk Cost'

A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business may face, such as inventory costs or R&D expenses, because it has already happened. Sunk costs are independent of any event that may occur in the future.

INVESTOPEDIA EXPLAINS 'Sunk Cost'

When making business or investment decisions, individuals and organizations typically look at the future costs that they may incur, by following a certain strategy. A company that has spent $5 million building a factory that is not yet complete, has to consider the $5 million sunk, since it cannot get the money back. It must decide whether continuing construction to complete the project will help the company regain the sunk cost, or whether it should walk away from the incomplete project.

RELATED TERMS
  1. Treasury Offering

    The issuance of an additional class of security already existing ...
  2. Relevant Cost

    A managerial accounting term that is used to describe costs that ...
  3. Irrelevant Cost

    A managerial accounting term that represents a cost, either positive ...
  4. Historical Cost

    A measure of value used in accounting in which the price of an ...
  5. Capacity Cost

    A fixed expense incurred by a company or organization in order ...
  6. Cost Of Goods Sold - COGS

    The direct costs attributable to the production of the goods ...
Related Articles
  1. Forex Education

    Understanding The Income Statement

    Learn how to use revenue and expenses, among other factors, to break down and analyze a company.
  2. Options & Futures

    Your Car: Fixer-Upper Or Scrap Metal?

    Sometimes buying a new car can be cheaper than shelling out for repairs.
  3. Options & Futures

    Advanced Financial Statement Analysis

    Learn what it means to do your homework on a company's performance and reporting practices before investing.
  4. Markets

    Introduction To Fundamental Analysis

    Learn this easy-to-understand technique of analyzing a company's financial statements and reports.
  5. Fundamental Analysis

    What is the difference between operating income and net income?

    Understand the difference between operating income and net income, including the calculations and interpretations of each when reading a balance sheet.
  6. Fundamental Analysis

    What is the difference between operating income and EBITDA?

    Read about the major differences between earnings before interest, taxes, depreciation and amortization (EBITDA) and operating income in a company's financial health.
  7. Fundamental Analysis

    What is the difference between operating income and gross profit?

    Learn more about the difference between operating income and gross profit, two accounting figures that appear on a company's income statement.
  8. Fundamental Analysis

    What is the difference between operating income and operating profit?

    Find out why operating margin and operating income can be treated synonymously with EBIT, but how they all differ from operating profit margin.
  9. Fundamental Analysis

    What is the difference between market capitalization and enterprise value?

    Understand the basics of market capitalization and enterprise value, how they measure company value and how they differ in calculation and precision.
  10. Fundamental Analysis

    What is the difference between market capitalization and revenue?

    Understand the definitions of market capitalization and revenue, how each is calculated and how each reflects the value of a company.

You May Also Like

Hot Definitions
  1. Christmas Tree

    An options trading strategy that is generally achieved by purchasing one call option and selling two other call options at ...
  2. Christmas Club

    A short-term savings account that usually pays out the full account balance to its account holders once each year, right ...
  3. Boston Snow Indicator

    A market theory that states that a white Christmas in Boston will result in rising stock prices for the following year. For ...
  4. Christmas Island Dollar

    The former currency of Christmas Island, an Australian island in the Indian Ocean that was discovered on December 25, 1643. ...
  5. Santa Claus Rally

    A surge in the price of stocks that often occurs in the week between Christmas and New Year's Day. There are numerous explanations ...
  6. Commodity

    1. A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often ...
Trading Center