Which of the following is an example of a sunk cost?

• A. Future payments for raw materials
• B. Expected profits from a new project
• C. Money spent on non-refundable equipment for a business
• D. Wages paid to employees for upcoming work

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the definition of a sunk cost. A sunk cost is a cost that has already been incurred and cannot be recovered, regardless of future actions.
2. Step 2: Analyze each option to determine if the cost is recoverable or related to future decisions:
3. - Future payments for raw materials are future costs, not sunk, because they depend on future decisions.
4. - Expected profits from a new project are potential future gains, not costs, so they are not sunk costs.
5. - Money spent on non-refundable equipment is a cost already incurred and cannot be recovered, fitting the definition of a sunk cost.
6. - Wages paid to employees for upcoming work are future costs, not sunk, because they depend on future work being done.