Define and Distinguish Between a Sunk Cost and an Opportunity

question 101

Essay

Define and distinguish between a sunk cost and an opportunity cost,and give an example of each.Is each one relevant to decision making? Explain.

---

Definitions:

FIFO

"First In, First Out," an accounting method for valuing inventory where the oldest items are sold first.

Straight-Line

A method of calculating depreciation of an asset which assumes the asset will lose an equal amount of value each year.

Sunk Cost

Costs that have already been incurred and cannot be recovered or changed, and thus should not affect future business decisions.

Salvage Value

The anticipated residual value of an asset after it has been fully depreciated and is no longer in use.