Cost Benefit Analysis Of Sunk Cost

Every business decision involves cost. Understanding cost allow manger to make efficient decision, mete out strategies and better manage risk.

Sunk Cost is resources already incurred and cannot be recovered. Such resources may include time, effort and/or money. It can also be explained resources that were already spent on particular service or item. Sunk costs should be considered irrelevant during potential new strategies or decision making as there is no recourse for sunk cost. It cannot be changed by later decision. This is much different from opportunity cost

For example:

Company ABC is a software company. Company ABC spend 5 months, salary for 3 person and $80,000 to develop a new software program. The mentioned resources are considered sunk. There is no recourse to

Which costs will change and which costs won’t when you make changes to your solid waste management system? The question may seem obvious, but it is often anything but. It depends on the mix of direct, indirect, fixed and variable costs. Consider a town that contracts with a hauler to collect five materials in its curbside program. Under this contract, the town is paying $90 per ton on average for collection a reasonably good rate for New Jersey. Because markets for recyclables have been somewhat weak, the town must pay an average price of $5 per ton to sell its recyclables to a private processing facility. Its direct cost of recycling would be $95 per ton. Now, in this same town, solid waste collection costs an average of $40 per ton and disposal costs another $60, for a combined total of $100 per ton. These numbers show that recycling is more cost-effective than not recycling. Recycling wins the cost competition by $5 per ton. it must possess three characteristics. It must (1) be associated with the decision under consideration, (2) be important to the decision maker, and (3) have a connection to or bearing on some future