What is meant by a sunk cost in cost accounting?
Correct answer: B. A cost already incurred and not recoverable
- A. A cost that varies with output
- B. A cost already incurred and not recoverable
- C. A cost avoided by cancelling an order
- D. A cost expected to arise in the future
Explanation
A sunk cost has already been incurred and cannot be changed by a current decision. It should not influence the choice between future alternatives, although it may appear in accounting records.
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About Cost Accounting
Cost accounting measures and analyses the cost of producing goods or providing services for planning, control and pricing decisions. It covers direct and indirect costs, fixed and variable costs, job and process costing, break-even analysis, marginal costing, overhead allocation, and the difference between product cost and period cost.
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