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Fixed Cost vs. Sunk Cost: What's the Difference?

Edited by Sawaira Riaz || By Sumera Saeed || Published on December 22, 2023
Fixed costs remain constant regardless of business activity, while sunk costs are past expenditures that cannot be recovered.

Key Differences

Fixed costs, such as rent or salaries, do not vary with the level of production or sales and are predictable expenses. Sunk costs refer to money already spent and irrecoverable, like a non-refundable marketing campaign expense.
Sumera Saeed
Dec 22, 2023
Fixed costs are an integral part of a business's break-even analysis, representing expenses that must be covered regardless of business performance. Sunk costs, however, should not influence future business decisions as they cannot be recovered.
Sumera Saeed
Dec 22, 2023
Planning, businesses often allocate fixed costs to set budgetary constraints; these costs are considered in pricing and profitability analyses. In contrast, sunk costs are historical and should be disregarded in future planning since they cannot be altered or recovered.
Sawaira Riaz
Dec 22, 2023
Fixed costs can be a challenge for new or small businesses due to their constant nature, impacting cash flow. Sunk costs represent past business decisions, and acknowledging them as non-recoverable is crucial for effective future investment decisions.
Aimie Carlson
Dec 22, 2023
Examples of fixed costs include lease payments, insurance, and regular salaries, which remain stable over time. Sunk costs examples are past investments, such as spent R&D expenses, which remain the same regardless of future outcomes.
Sumera Saeed
Dec 22, 2023
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Comparison Chart

Definition

Regular, unchanged costs regardless of production level.
Past costs that are no longer recoverable.
Sumera Saeed
Dec 22, 2023

Variability

Non-variable with production or sales volume.
Incurred in the past, no future variability.
Sumera Saeed
Dec 22, 2023

Recoverability

Not directly recoverable, but influential in pricing.
Cannot be recovered or altered.
Sumera Saeed
Dec 22, 2023

Role in Decision-Making

Considered in current and future budgeting.
Should be excluded from future decisions.
Janet White
Dec 22, 2023

Examples

Rent, insurance premiums.
Money spent on a failed marketing campaign.
Harlon Moss
Dec 22, 2023
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Fixed Cost and Sunk Cost Definitions

Fixed Cost

Constant costs over a specific period.
The salary of permanent staff is a fixed cost.
Sumera Saeed
Dec 02, 2023

Sunk Cost

Irrecoverable costs from past actions.
A non-refundable deposit on a cancelled event is a sunk cost.
Sumera Saeed
Dec 02, 2023

Fixed Cost

Overhead costs not tied to production levels.
Fixed costs for a retailer include store utility bills.
Sumera Saeed
Dec 02, 2023

Sunk Cost

Expenses that should not influence future business decisions.
A failed advertising campaign represents a sunk cost.
Aimie Carlson
Dec 02, 2023

Fixed Cost

Predictable expenses included in budgeting.
A restaurant’s lease payment is a fixed cost.
Sawaira Riaz
Dec 02, 2023

Sunk Cost

Historical financial outlays without future value.
The initial cost of a replaced machine is a sunk cost.
Aimie Carlson
Dec 02, 2023

Fixed Cost

Costs that do not change with production volume.
The monthly rent for a factory is a fixed cost.
Sumera Saeed
Dec 02, 2023

Sunk Cost

Costs already incurred and irretrievable.
Money spent on a discontinued product development is a sunk cost.
Sumera Saeed
Dec 02, 2023

Fixed Cost

Regular expenses unaffected by business activity.
Annual software licenses are a fixed cost for a tech company.
Sumera Saeed
Dec 02, 2023

Sunk Cost

Past expenditures that no longer affect current decisions.
Investment in outdated technology is a sunk cost.
Sawaira Riaz
Dec 02, 2023

FAQs

What is a sunk cost?

A cost that has been incurred and cannot be recovered.
Sawaira Riaz
Dec 22, 2023

Can sunk costs be recovered in the future?

No, sunk costs are permanently irrecoverable.
Sumera Saeed
Dec 22, 2023

How do businesses plan for fixed costs?

They include them in regular budgeting and financial planning.
Harlon Moss
Dec 22, 2023

Should sunk costs influence business decisions?

No, sunk costs should not affect future decisions.
Sumera Saeed
Dec 22, 2023

How do fixed costs impact profitability?

They must be covered by revenue for a business to be profitable.
Sumera Saeed
Dec 22, 2023

Are salaries a fixed cost?

Yes, regular salaries are typically considered fixed costs.
Harlon Moss
Dec 22, 2023

What is a fixed cost?

A cost that remains constant regardless of production or sales volume.
Sumera Saeed
Dec 22, 2023

Can a sunk cost ever be a variable cost?

No, once incurred, sunk costs are not variable.
Harlon Moss
Dec 22, 2023

Are all overhead costs fixed costs?

Most overhead costs are fixed, but not all.
Harlon Moss
Dec 22, 2023

Is a failed marketing effort a sunk cost?

Yes, if it doesn’t bring the desired results.
Harlon Moss
Dec 22, 2023

Does depreciation count as a sunk cost?

No, depreciation is an accounting method, not a sunk cost.
Aimie Carlson
Dec 22, 2023

Is research and development a sunk cost?

If the R&D does not lead to successful outcomes, its cost becomes sunk.
Aimie Carlson
Dec 22, 2023

Can sunk costs be reclaimed through tax deductions?

Sometimes, but they still remain sunk costs.
Janet White
Dec 22, 2023

Do fixed costs vary with business size?

They can, but within a specific size, they remain constant.
Janet White
Dec 22, 2023

Are fixed costs the same for every business?

No, they vary depending on the business type and scale.
Aimie Carlson
Dec 22, 2023

How do startups manage high fixed costs?

Through careful budgeting and seeking external funding.
Sumera Saeed
Dec 22, 2023

Can a fixed cost change over time?

It can change but remains fixed for a certain period.
Harlon Moss
Dec 22, 2023

Why are sunk costs irrelevant for future planning?

Because they cannot be altered or recovered.
Harlon Moss
Dec 22, 2023

What is an example of a sunk cost in personal finance?

Money spent on a non-refundable vacation package.
Aimie Carlson
Dec 22, 2023

Do fixed costs affect break-even analysis?

Yes, they are crucial in calculating the break-even point.
Sumera Saeed
Dec 22, 2023
About Author
Written by
Sumera Saeed
Sumera is an experienced content writer and editor with a niche in comparative analysis. At Diffeence Wiki, she crafts clear and unbiased comparisons to guide readers in making informed decisions. With a dedication to thorough research and quality, Sumera's work stands out in the digital realm. Off the clock, she enjoys reading and exploring diverse cultures.
Edited by
Sawaira Riaz
Sawaira is a dedicated content editor at difference.wiki, where she meticulously refines articles to ensure clarity and accuracy. With a keen eye for detail, she upholds the site's commitment to delivering insightful and precise content.

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