{"id":569,"date":"2018-04-18T22:49:07","date_gmt":"2018-04-18T22:49:07","guid":{"rendered":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/?post_type=chapter&#038;p=569"},"modified":"2024-04-29T17:28:07","modified_gmt":"2024-04-29T17:28:07","slug":"recognizing-sunk-costs","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/chapter\/recognizing-sunk-costs\/","title":{"raw":"Sunk Costs","rendered":"Sunk Costs"},"content":{"raw":"<div class=\"textbox learning-objectives\">\r\n<h3>Learning Outcomes<\/h3>\r\n<ul>\r\n \t<li>Recognize sunk costs<\/li>\r\n<\/ul>\r\n<\/div>\r\nThere is a piece of machinery sitting in your warehouse. No matter what product your company decides to make, that piece of machinery is worthless. It is old, broken and outdated. But your supervisor comes to you and says \u201cbut it cost $50,000.\u201d So what? No matter what decision you come to, that $50k is gone! We call that a sunk cost.\r\n\r\nFrom a personal financial standpoint, here are some examples of sunk cost to help make the concept make more sense in the following video.\r\n\r\nhttps:\/\/www.youtube.com\/watch?v=BbfQEfXFegc&amp;feature=youtu.be\r\n\r\nSunk costs are those costs that happened and there is not one thing we can do about it. These costs are <strong>never<\/strong> relevant in our decision making process because they already happened.\r\n\r\nThese costs are never a differential cost, meaning, they are always irrelevant. Let\u2019s look at an example:\r\n\r\nHupana Running Company bought a machine for $50,000 that was used to make water bottles. The water bottle line never really took off, so Hupana decided to discontinue the line, and focus their efforts on the running shoes that were the profitable portion of the business. Even though, in hindsight, they should have never added a line of water bottles to their product line, the $50,000 they spent on the machine is a sunk cost.\r\n\r\nIt would be senseless for Hupana to keep making the water bottles to try to recoup the already spent $50,000, but they could try to sell the machine to another company who already makes water bottles. No matter what they do with the machine, the 50K is a sunk cost, not to be recovered, and irrelevant to any decisions the company makes now. So we need to just let it go.\r\n<div class=\"textbox tryit\">\r\n<h3>Practice Questions<\/h3>\r\nhttps:\/\/assess.lumenlearning.com\/practice\/438d5897-2d33-46bb-89f4-7dca5e1410f8\r\n<\/div>","rendered":"<div class=\"textbox learning-objectives\">\n<h3>Learning Outcomes<\/h3>\n<ul>\n<li>Recognize sunk costs<\/li>\n<\/ul>\n<\/div>\n<p>There is a piece of machinery sitting in your warehouse. No matter what product your company decides to make, that piece of machinery is worthless. It is old, broken and outdated. But your supervisor comes to you and says \u201cbut it cost $50,000.\u201d So what? No matter what decision you come to, that $50k is gone! We call that a sunk cost.<\/p>\n<p>From a personal financial standpoint, here are some examples of sunk cost to help make the concept make more sense in the following video.<\/p>\n<p><iframe loading=\"lazy\" id=\"oembed-1\" title=\"WHAT ARE SUNK COSTS? | Financially Fabulous\" width=\"500\" height=\"281\" src=\"https:\/\/www.youtube.com\/embed\/BbfQEfXFegc?feature=oembed&#38;rel=0\" frameborder=\"0\" allowfullscreen=\"allowfullscreen\"><\/iframe><\/p>\n<p>Sunk costs are those costs that happened and there is not one thing we can do about it. These costs are <strong>never<\/strong> relevant in our decision making process because they already happened.<\/p>\n<p>These costs are never a differential cost, meaning, they are always irrelevant. Let\u2019s look at an example:<\/p>\n<p>Hupana Running Company bought a machine for $50,000 that was used to make water bottles. The water bottle line never really took off, so Hupana decided to discontinue the line, and focus their efforts on the running shoes that were the profitable portion of the business. Even though, in hindsight, they should have never added a line of water bottles to their product line, the $50,000 they spent on the machine is a sunk cost.<\/p>\n<p>It would be senseless for Hupana to keep making the water bottles to try to recoup the already spent $50,000, but they could try to sell the machine to another company who already makes water bottles. No matter what they do with the machine, the 50K is a sunk cost, not to be recovered, and irrelevant to any decisions the company makes now. So we need to just let it go.<\/p>\n<div class=\"textbox tryit\">\n<h3>Practice Questions<\/h3>\n<p>\t<iframe id=\"assessment_practice_438d5897-2d33-46bb-89f4-7dca5e1410f8\" class=\"resizable\" src=\"https:\/\/assess.lumenlearning.com\/practice\/438d5897-2d33-46bb-89f4-7dca5e1410f8?iframe_resize_id=assessment_practice_id_438d5897-2d33-46bb-89f4-7dca5e1410f8\" frameborder=\"0\" style=\"border:none;width:100%;height:100%;min-height:300px;\"><br \/>\n\t<\/iframe>\n<\/div>\n\n\t\t\t <section class=\"citations-section\" role=\"contentinfo\">\n\t\t\t <h3>Candela Citations<\/h3>\n\t\t\t\t\t <div>\n\t\t\t\t\t\t <div id=\"citation-list-569\">\n\t\t\t\t\t\t\t <div class=\"licensing\"><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Original<\/div><ul class=\"citation-list\"><li>Sunk Costs. <strong>Authored by<\/strong>: Freedom Learning Group. <strong>Provided by<\/strong>: Lumen Learning. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><\/ul><div class=\"license-attribution-dropdown-subheading\">All rights reserved content<\/div><ul class=\"citation-list\"><li>WHAT ARE SUNK COSTS? | Financially Fabulous. <strong>Authored by<\/strong>: Limor Markman. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/www.youtube.com\/watch?v=BbfQEfXFegc&#038;feature=youtu.be\">https:\/\/www.youtube.com\/watch?v=BbfQEfXFegc&#038;feature=youtu.be<\/a>. <strong>License<\/strong>: <em>All Rights Reserved<\/em><\/li><\/ul><\/div>\n\t\t\t\t\t\t <\/div>\n\t\t\t\t\t <\/div>\n\t\t\t <\/section>","protected":false},"author":62559,"menu_order":5,"template":"","meta":{"_candela_citation":"[{\"type\":\"copyrighted_video\",\"description\":\"WHAT ARE SUNK COSTS? | Financially Fabulous\",\"author\":\"Limor Markman\",\"organization\":\"\",\"url\":\"https:\/\/www.youtube.com\/watch?v=BbfQEfXFegc&feature=youtu.be\",\"project\":\"\",\"license\":\"arr\",\"license_terms\":\"\"},{\"type\":\"original\",\"description\":\"Sunk Costs\",\"author\":\"Freedom Learning Group\",\"organization\":\"Lumen Learning\",\"url\":\"\",\"project\":\"\",\"license\":\"cc-by\",\"license_terms\":\"\"}]","CANDELA_OUTCOMES_GUID":"b84d3e86-94a4-4665-be79-c010cf40ec9d, 9adb86ba-5209-4716-8ccf-7450c7134879","pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"class_list":["post-569","chapter","type-chapter","status-publish","hentry"],"part":110,"_links":{"self":[{"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/pressbooks\/v2\/chapters\/569","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/wp\/v2\/users\/62559"}],"version-history":[{"count":14,"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/pressbooks\/v2\/chapters\/569\/revisions"}],"predecessor-version":[{"id":4141,"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/pressbooks\/v2\/chapters\/569\/revisions\/4141"}],"part":[{"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/pressbooks\/v2\/parts\/110"}],"metadata":[{"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/pressbooks\/v2\/chapters\/569\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/wp\/v2\/media?parent=569"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/pressbooks\/v2\/chapter-type?post=569"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/wp\/v2\/contributor?post=569"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/wp\/v2\/license?post=569"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}