Question

Distinguish between Shut down cost and sunk cost.

Answer 1

Shut down cost	Sunk cost
1. During this period though no work is done yet certain fixed costs such as rent, insurance of a plant may have to be incurred. Such cost of the idle plant are known as shut down costs.	1. Sunk cost are historical or past costs which cannot be changed by any future decisions. Investment in plant and machinery, buildings are examples of sunk costs.
2. A business firm may have to suspend its operations for a period due to some temporary problems.	2. These costs are irrelevant for decision making because they cannot be altered by later decision.