The Impact of Sunk and Opportunity Costs
Two types of costs that can easily be overlooked when making decisions are sunk costs and opportunity costs. A sunk cost is a cost that was incurred in the past. It cannot be recovered or changed regardless of any management decisions. An opportunity cost is the cost associated with not choosing one alternative over another, and it can be measured in monetary and non-monetary means. For example, imagine that an organization hosted a 3-day retreat to promote team building, but it was unappreciated by the employees and caused more harm than good. Once the retreat was paid for and attended, it was a sunk cost, since the managers can never return to the past and change the fact the retreat happened. The opportunity costs in this situation could be that employees could have spent those 3 days more productively by completing a project, the funds for the retreat could have been utilized elsewhere (e.g., bonuses), or a more effective retreat or team-building exercise could have been booked instead. In this Discussion, you will consider an example of a sunk or opportunity cost and its impact on an organization.
To prepare for this Discussion:
- Consider an example from your professional career of either a sunk cost or an opportunity cost.
Post an analysis of the impact of costs for an organization, to include the following:
- Describe an example of a sunk cost or opportunity cost from your current or past professional career, including why it would be either defined as a sunk cost or an opportunity cost.
- Analyze the impact that this cost had on the organization, including how the main stakeholder(s) were affected by this situation.
- With an understanding of sunk or opportunity costs, propose how you, as the manager, might address this scenario differently.
Week 4 Assignment: Accounting Tools and Measures for Decision Making—Part 1
Prepared by: Replace this text with your name.
Date: Replace this text with the submission date.
Walden University
MBAX 6050: Accounting for Management Decision Making
Sunk Costs, Opportunity Costs, and Accounting Costs – Fixed and Variable
Replace this text with introductory information. Add or remove headings as necessary.
[Heading]
Replace or remove this text. Add or remove headings as necessary.
[Sub-Heading]
Replace or remove this text. Add or remove headings as necessary.
References
[Please delete this note before submitting your Assignment. For more information about formatting your reference list, please visit the following site: https://academicguides.waldenu.edu/writingcenter/apa/references .]
Include appropriately formatted references to support your Assignment. Refer to the Assignment guidelines for further information on the requirements.
Page 5 of 15
,
Account for Management Decision Making
Week 4 Learning Resources
Costs
There are many different types of costs that impact a manager’s decision making. Therefore, it is imperative that managers understand what each type is as well as the ones relevant to a specific decision. In these resources, you will examine different types of costs.
· Franklin, M., Graybeal, P., & Cooper, D. (2019). 2.2 identify and apply basic cost behavior patternsLinks to an external site. . In Principles of accounting, volume 2: Managerial accounting . OpenStax. https://openstax.org/books/principles-managerial-accounting/pages/2-2-identify-and-apply-basic-cost-behavior-patterns
· Franklin, M., Graybeal, P., & Cooper, D. (2019). Why it mattersLinks to an external site. . In Principles of accounting, volume 2: Managerial accounting . OpenStax. https://openstax.org/books/principles-managerial-accounting/pages/10-why-it-matters
· Franklin, M., Graybeal, P., & Cooper, D. (2019). 10.1 identify relevant information for decision-makingLinks to an external site. . In Principles of accounting, volume 2: Managerial accounting . OpenStax. https://openstax.org/books/principles-managerial-accounting/pages/10-1-identify-relevant-information-for-decision-making
· Hultman, J. A. (2021, February). Know your relevant costs before making financial decisionsLinks to an external site. . Podiatry Management, 40 (2), 134–138.
· Walden University, LLC. (2024). Cost considerations for accounting decision making Download Cost considerations for accounting decision making [PDF]. Walden University Canvas. https://waldenu.instructure.com