The Difference between Sunk Costs and Opportunity Costs: Meaning and Estimations

Meaning

• Sunk costs have already been incurred and cannot be recovered by any means
• Opportunity costs represent forgone returns of alternative opportunities

Implicit or Explicit

• Sunk costs are explicit as they are the result of actual cash flows
• Opportunity costs are generally implicit as they are notional in nature and do not come in the form of cash outflow

Estimation of Cost

• Sunk costs can be accurately estimated as they have actual purchase prices that have been incurred
• Opportunity costs are harder to estimate as they are often notional and their value is more subjective.