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Sunk cost

A sunk cost has already been incurred and cannot be changed by the decision now being considered. It is excluded from the financial comparison of future alternatives, although it may explain past performance or inform learning. Historical purchase price and research already paid are common examples. Distinguish the sunk amount from future cash costs or recoveries associated with the same asset or project, which can still change between options.

Worked example

A study cost $5,000 last month. Proceeding with a contract now requires another $12,000 and earns $16,000. The $5,000 does not change the current $4,000 incremental benefit.

Common mistake

Excluding a past cost from a decision does not mean deleting it from financial accounts or treating every future cost as relevant.

Where it appears in your exams

QualificationExamRelationshipPeriod
ACCA PM Direct September 2026–June 2027