From the course: Accounting Foundations: Managerial Accounting
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Understanding sunk costs
From the course: Accounting Foundations: Managerial Accounting
Understanding sunk costs
- Like any other field of study, managerial accounting has its own set of vocabulary, its own set of terms. - Many of these terms relate to different ways of thinking of costs. Is a cost fixed, or is it variable? Is the cost an out-of-pocket cost or an opportunity cost? Is the cost a sunk cost? - Ah, sunk cost. Let me tell you a sunk costs story. This story happened just last month in the Beijing airport. I was stranded. I had a ticket bought and paid for that would get me out of town, in two days. I called the airline trying to keep the tears out of my voice. And they said, "This is not our problem. We will make sure to confirm your reservation for the flight in two days." - [Man One] Now, you and I have been to Beijing before. Great city. So two days in Beijing is not bad. - No, not bad, I agree. Under normal circumstances, but I had some other obligations I had to get out of town. But there was that ticket, for which I had already paid, and which I had been bluntly told by the…
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