Sunk Costs

Written by True Tamplin, BSc, CEPF®

Reviewed by Subject Matter Experts

Updated on January 31, 2024


Sunk cost is a cost that has already been incurred and cannot be avoided or changed. Consequently, sunk costs are irrelevant to current decision-making.


Sunk costs have already been incurred. No matter the decision, a sunk cost cannot be changed. Hence, these costs are irrelevant in the decision-making process.

Importantly, if sunk costs are included in the decision-making process, this makes it difficult for management to focus on the key decision variables.


Suppose that Sample Limited purchased a building for its showroom at a cost of $500,000 in 2024.

The company is now considering a change to its product mix.

The cost of the building and its depreciation will be the same regardless of the composition of the company's product mix.

So, this cost—being unavoidable—has no relevance to the current decision-making situation and is a sunk cost.

Sunk Costs FAQs

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.