Sunk cost and differential cost are two important terms in cost accounting. As the student, you should know both terms. Both terms are totally different. In following lines, we are explaining its meaning and example.

Sunk Cost

Any cost which is paid and now, we can not change these cost by our decision. Such cost is sunk cost. For example, we have the camera of negative. There is no machine for making film out of negative. So, our this camera is useless. Because in the market, its value is useless. We can also not use it for our business. So, this is our sunk cost. If you have spent lots of money all will be your lose because there is no scrap value.

Differential Cost

Difference in cost of two alternatives product or service is called differential cost. For example, If we buy the product from A, we have to pay \$ 1000. If we buy same product from B, cost will be \$ 1200. Differential cost of alternative A and B will be \$ 200.

For business decision, we can consider differential cost because it is relevant cost but sunk cost is irrelevant cost, we will leave sunk cost for decision making.

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Accounting Education: Sunk Cost and Differential Cost
Sunk Cost and Differential Cost
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Accounting Education
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