are costs that, once committed, can never be recovered and should not affect current and future production costs.

Question

BlackTom AI · Accepted Answer

Sunk costs are costs that, once incurred, cannot be recovered and therefore should not influence current or future production decisions.

Relevant knowledge points:
- Definition: A sunk cost is a past expenditure that cannot be changed by any current or future action.  
- Decision rule: Rational decision-making ignores sunk costs and focuses on relevant (incremental or marginal) costs and benefits.  
- Distinctions: Sunk costs differ from avoidable/variable costs (which can be changed) and opportunity costs (the value of the best alternative foregone).

Step-by-step reasoning:
1. Identify whether the cost can be reversed or avoided. If not, it is sunk.  
2. For a production decision, compare incremental revenue to incremental (avoidable) costs. Ignore any sunk amounts because they will not change regardless of the decision.  
3. Make the choice that maximizes net incremental benefit.

Numerical illustration (intermediate steps shown):
- Suppose a firm paid $100,000 for specialized tooling last year (sunk). Current batch: expected revenue $20,000, avoidable production cost $5,000.  
- Incremental profit = Revenue − Avoidable cost = $20,000 − $5,000 = $15,000.  
- The $100,000 tooling cost is not included because it cannot be recovered and does not affect the incremental profit calculation. The positive incremental profit indicates production should proceed.

Why the correct answer is correct:
Because the defining property of sunk costs is irretrievability, they do not change with future actions; therefore they should not affect production decisions or be included in calculations of current/future production costs. Decision-making must be based on costs and benefits that will actually change as a result of the decision.

Why other possible terms would be incorrect:
- Fixed costs may be recoverable or avoidable in the long run and can be relevant if they change with the decision.  
- Opportunity cost is a forward-looking forgone benefit, not a past unrecoverable expenditure.  
- Committed costs are obligations but not necessarily unrecoverable in every context.

Conclusion: The correct answer is Sunk costs, which matches the provided answer.

are costs that, once committed, can never be recovered and should not affect current and future production costs.单项选择题

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