Question

Which of the following is an example of a sunk cost?

A) the electricity purchased by a horse breeder
B) the $100,000 a shoe factory will pay for the leather it uses to make shoes
C) the $6,000 Tommy's insurance company pays him after an accident
D) after you start watching a movie, the $8 you paid for the ticket
E) the $10 being spent on gasoline purchased by a traveling salesperson

Answer 1

The correct answer is option D.

Step-by-step explanation:

Sunk costs can be defined as those costs which already been incurred and cannot be recovered anymore. These costs are excluded from business decision making.

It is can be referred to as a cost that is no longer relevant.

The $8 paid for a ticket, after the person starts watching the movie is a sunk cost as it cannot be recovered anymore.

Sunk costs are contrasted to relevant cost which is yet to be incurred in the future. Cost pf machinery, equipment, etc are examples of sunk cost.