Sunk Costs

Sunk costs are not to be considered in incremental analysis or other decision making due to their inherent irrelevancy. As the name implies, sunk costs are costs which have been incurred in an accounting cycle and have no further future impact. Sunk costs will not reflect any changes in production, nor will they be impacted by changes in production.

Opportunity Costs are on the other hand relevant by nature of having impactful results on production and by forces of production. If we make a decision that has recourse on another area of production, then that recourse and its results would qualify as “opportunity forgone” or “opportunity cost.” When making business decisions, there will almost always be an opportunity cost. It is much like the analogy of every action having a reaction. The reaction might be foregoing an alternative which would have resulted in additional expenses or revenues. Those foregone expenses or revenues are the opportunity costs associate with the decision made.

The Theory of Constraints (TOC) thinking process is argued by academia and the likes to have been a rework of previous management science applications. “Duncan (as cited by Steyn)[16] says that TOC borrows heavily from systems dynamics developed by Forrester in the 1950s and from statistical process control which dates back to World War II. And Noreen Smith and Mackey, in their independent report on TOC, point out that several key concepts in TOC "have been topics in management accounting textbooks for decades."[17] (http://en.wikipedia.org/wiki/Theory_of_constraints)

The theory received much attention by critics which prompted the release of another book and audio program. “A rebuttal to these criticisms is offered in Goldratt's "What is the Theory of Constraints and How Should it be Implemented?", and in his audio program, "Beyond The Goal". In these, Goldratt discusses the history of disciplinary sciences,