PRC-3 · Chapter 12 · Question 11 of 69
A software company spent Rs. 10 million developing a custom application that completely failed and cannot be sold or repurposed. In evaluating future decisions, how should the management treat this non-recoverable past expense?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) As a sunk cost to be ignored
Explanation
A sunk cost is a cost that has already been incurred and cannot be recovered. Rational economic decisions should ignore sunk costs and focus on future marginal costs and benefits.
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