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Sunk Cost

 

Learning outcome: After attempting this activity, students will be able to understand the concept of “Sunk Cost”.

 

Background: 

Internationally, governments spend vast amount of money on government projects in various sectors including health, infrastructure, education, community and even on defense. Although, such projects are well planned with specific objective, however, some of these projects are abandoned well before completion. Consequently, it creates substantial “sunk costs” for the government. For instance, in Orange country, Metro Train project of 1,000 Km was idealized for Rs. 2 billion in 2010 however it was halted only after 400 Km of the road was constructed.  In Apple country, government purchased electronic voting machines for Rs. 1 billion in 2018, however these machines were disposed of in 2020 only after being used once in the elections. Additionally, the mentioned cost did not include the storage cost.

 

Requirement:

  • Justify, whether the above mentioned cost can be considered “sunk cost”? If yes, why if not, why not.

 

Important Instructions:

  • Post your GDB comments (answer) against GDB # 01 rather than against lessons’ MDB.
  • Your discussion must be based on logical reasoning and to the point. Avoid irrelevant discussion and unnecessary information
  • Do not copy or exchange your answer with other students.  Two identical / copied comments will be marked Zero (0) and may damage your grade in the course.
  • Books, websites and other reading material may be consulted before posting your comments; but copying or reproducing the text from books, websites and other reading materials is strictly prohibited. Such comments will be marked as Zero (0) even if you provide references.
  • Obnoxious or ignoble answer should be strictly avoided.
  • Questions/queries related to the content of the GDB, which may be posted by the students on MDB or via e-mail, will not be replied till the due date of GDB.

Views: 157

Replies to This Discussion

Sunk cost is the cost expended in the past that cannot be retrieved on product or service. For example the entity purchase stationary in bulk last month. This expense has been incurred and hence will not be relevant to the management decisions to be taken subsequent to the purchase.The cost of Rs 2 billion and 1 billion mentioned is considered as sunk cost because it cannot be used to get any benefit in monetary terms that is it cannot be recovered

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