Which of the following is an example of a sunk cost?
A)Overhead costs that are associated with a project
B)Interest expense associated with a project
C)Market study expenses incurred in order to decide if a firm should accept a project
D)Income taxes associated with a project
E)Depreciation expenses associated with a project

Question

Quizplus · Accepted Answer

Sunk cost refers to costs that have already been incurred and cannot be recovered, regardless of whether or not the project is pursued. Market study expenses that have already been incurred cannot be recovered and, therefore, represent a sunk cost. Overhead costs, interest expense, income taxes, and depreciation expenses may or may not be avoidable depending on whether or not the project is pursued and, thus, are not considered sunk costs.

Which of the Following Is an Example of a Sunk