Sunk Costs

Submitted by interservicio on Mon, 03/24/2014 - 09:03

OK, Sunk costs are cost already incurred in the project, which shouldnt afect future decisions.

But how about this?

"You contract an independent firm to audit your project. The payment agred is 110.000$ (30.000$ at the start, and 80.000$ when the study ends). The study is halfway done. What is the sunk cost?".

Should be 30.000 because that's what have been paid already?

Should be 110.000 because that's the total obligation acquiered?

 

Please note that the payment has to be made on full, there is no future negotiation or whatever..

 

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admin

Mon, 03/24/2014 - 09:30

There is no sunk cost here. Unless it says project was scrapped and the work completed cannot be used. Here its half way done . 

interservicio

Mon, 03/24/2014 - 09:34

OK, then imagine that instead and study you contracted the development of a Prototype for a project cancelled.

Are the sunk cost the total obligation acquiered or the payment already made?