Question

Which of the following costs should not affect decision making and should be not taken into account? 

• Opportunity cost 

• Overhead costs 

• Sunk cost 

• Differential cost 

Answer 1

Oppurtunity cost is the benefit sacrificed due to selecting one alternative over other.

Overhead cost is the indirect cost incurred in the project like advertisement, tax, accounting cost, rent, marketing cost etc.

Sunk cost is the expense incured in an object which cannot be recovered later. Considerong this increase the non profitability of the project hence should not be considered.

Differential cost is the difference in cost incurred by different choices.

Considering the above statements sulk cost should not be considered for decision making.