Costs that have no impact on future cash flows and are irrelevant to decisions are sunk costs.
Sunk costs are those that have already been incurred but are not recoverable. Sunk costs are not considered in future business decisions because the cost remains constant regardless of the outcome of the decision. Salary, insurance, rent, non-refundable deposits, and repairs are examples of sunk costs (as long as each of those items is not recoverable).
Businesses that proceed with a course of action because they have already invested time or money in a prior decision risk falling into the sunk cost trap. All sunk costs are fixed costs, but not all fixed costs are sunk costs. Sunk costs are different in that they cannot be recovered. It is not a sunk cost if equipment can be resold or returned at the original purchase price.
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