Which of the following is an example of a non-relevant cost?

Which of the following is an example of a non-relevant cost?

• A. Sunk costs
• B. Future cash flows
• C. Variable production costs
• D. Opportunity costs

Answer: (A)

A sunk cost is indeed a non-relevant cost. This is because sunk costs are expenses that have already been incurred and cannot be recovered, regardless of future decisions. When making economic decisions, such as whether to continue or discontinue a project, only costs and benefits that will be affected by the decision at hand should be considered. Since sunk costs do not change with future actions, they do not influence decision-making and are therefore irrelevant. In contrast, future cash flows involve projections of income or expenses that will occur as a result of current choices, making them highly relevant for decision-making scenarios. Variable production costs are also relevant because they can change depending on the level of production undertaken. Opportunity costs represent the benefits lost by choosing one alternative over another and are essential in evaluating the potential returns of different decisions. Hence, while sunk costs provide historical context, they do not contribute meaningfully to the analysis of future economic decisions.

A sunk cost is indeed a non-relevant cost. This is because sunk costs are expenses that have already been incurred and cannot be recovered, regardless of future decisions. When making economic decisions, such as whether to continue or discontinue a project, only costs and benefits that will be affected by the decision at hand should be considered. Since sunk costs do not change with future actions, they do not influence decision-making and are therefore irrelevant.

In contrast, future cash flows involve projections of income or expenses that will occur as a result of current choices, making them highly relevant for decision-making scenarios. Variable production costs are also relevant because they can change depending on the level of production undertaken. Opportunity costs represent the benefits lost by choosing one alternative over another and are essential in evaluating the potential returns of different decisions. Hence, while sunk costs provide historical context, they do not contribute meaningfully to the analysis of future economic decisions.