Prospective cost
From Wikipedia, the free encyclopedia
A prospective cost is a cost that may be incurred or changed if an action is taken: Whether or not the cost is paid depends on some action. Prospective costs can lead to unintended loss and positive or negative results for the stakeholders,[1] and can be contrasted with sunk costs, which are costs that have already been incurred.
Use in decision-making
Prospective costs are relevant to decision-making when they are expected to change as a result of a proposed action. In management accounting, relevant costs are future cash flows that arise because of a decision, while costs that will not change between alternatives are generally excluded from the analysis.[2]
This distinguishes prospective costs from sunk costs, which have already been incurred and cannot be changed by a future decision. Relevant cash flows should arise in the future, while costs that occurred in the past are treated as sunk costs and excluded from relevant-cost analysis.[3]
