Sunk Cost & Opportunity Gain
Sunk cost is money that has already been spent and cannot be recovered. Because it doesn't change based on different choices, it should be ignored when making decisions. Instead, focus on costs that do change with different options, which are relevant for decision making. Let me share a personal experience to explain sunk cost and opportunity gain.
While driving back to Chennai for my class, I saw two students crossing the road to catch a suburban train. I offered them a ride so we could all get to class on time. One student was very happy because he saved money on travel, which he could use as extra pocket money. The other student wasn't as cheerful. When I asked why, he said he had already bought a season ticket, so he didn't save any money.
For the first student, it was an opportunity gain. For the second student, it was a sunk cost.
By CA L.Muralidharan and CPA L.Mukundan
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