C. Sunk cost

A sunk cost is an expenditure that has already been made and cannot be recovered. It is also known as a historical cost. Sunk costs are not relevant to decision-making because they have already been incurred and cannot be changed. Therefore, they should not be considered when making future decisions.

Sunk costs can arise in various situations, such as business investments, personal expenses, or government projects. Regardless of the context, sunk costs are costs that have already been paid and cannot be recovered.

Key Points:
- Sunk costs are expenditures that have already been made and cannot be recovered.
- They are also known as historical costs.
- Sunk costs are not relevant to decision-making because they cannot be changed.
- They should not be considered when making future decisions.

Why Sunk Costs are Irrelevant:
Sunk costs are irrelevant because they cannot be changed or recovered. When making decisions, it is important to focus on future costs and benefits rather than dwelling on past expenses that cannot be undone.

Example:
For example, let's consider a business that invested a significant amount of money in a new product development project. However, after conducting market research and analysis, it became evident that the product would not be successful in the market. The money invested in the project is now a sunk cost because it has already been spent and cannot be recovered.

If the business decides to continue with the project despite the negative market analysis, it would be making a decision based on sunk costs. This would not be a rational decision because it is not considering the future costs and benefits of the project, which are the relevant factors.

Conclusion:
Sunk costs are expenditures that have already been made and cannot be recovered. They should not be considered when making future decisions because they cannot be changed. It is important to focus on future costs and benefits rather than dwelling on past expenses that are no longer relevant.