What is a Past Cost?

A past cost is money that has already been spent. These funds cannot be recovered, so the related cost is irrelevant for decision-making purposes. The concept is of critical importance in making project funding decisions, where managers all too often decide to continue funding a project simply because there is a large past cost associated with it. They should instead focus on whether the project would make sense on a go-forward basis.

A past cost is also known as a sunk cost.

Example of a Past Cost

As an example of a past cost, a business has spent $100,000 on research related to carbon dioxide sequestration. The resulting process turns out to be ineffective. In deciding whether to invest more funds in the project, management should ignore the money that has already been spent on it.