Page 76 - P1 Integrated Workbook STUDENT 2018
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Chapter 5
Other terms
2.1 Definitions of other terms used in decision making
Sunk costs Expenditure that has already been incurred and
therefore will not be relevant to the investment
decision.
Committed costs Expenditure that will be incurred in the future, but as a
result of decisions taken in the past that cannot now be
changed. These are not treated as relevant costs for
decision making.
Opportunity cost The value of the benefit sacrificed when one course of
action is chosen, in preference to an alternative. The
opportunity cost is represented by the forgone potential
benefit from the best rejected course of action. These
costs usually become relevant when resources are
scarce.
Illustrations and further practice
Now try example 2 from Chapter 6.
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