Question

When making business changes in the short run, management sometimes gets locked in to certain costs arising from previous decisions. This is type of cost is best known as:_______.

a. controllable.
b. differential.
c. uncontrollable.
d. sunk.

Answer 1

Answer: This is the type of cost known as Sunk.

• sunk cost is a cost that has already been incurred and cannot be recovered. Sunk costs are contrasted with prospective costs, which are future costs that may be avoided if action is taken.

• A sunk cost refers to money that has already been spent and which cannot be recovered. ... Sunk costs are excluded from future business decisions because the cost will remain the same regardless of the outcome of a decision.

• The sunk cost effect is manifested in a greater tendency to continue an endeavor once an investment in money, effort, or time has been made. Evidence that the psychological justification for this behavior is predicated on the desire not to appear wasteful is presented.