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Question 63

An organization has invested $750,000 into a technology to help secure, automate, and communicate customer ordering. The solution has worked well for the past six months, but a newer technology has been developed that surpasses the abilities of the current solution and solves many defects and issues the company has with the existing solution. Purchasing the newer solution, however, means that the company will have to discard the solution that's only been in place for the past six months. What term can be assigned to the monies already implemented into the existing solution?

    Correct Answer:

    The invested $750,000 into the technology that the organization has already spent is termed as sunk costs. Sunk costs refer to money that has already been spent and cannot be recovered. These costs should not influence future business decisions as they will remain the same regardless of the outcome. Opportunity cost refers to the potential benefits that one misses out on when choosing one alternative over another. Cost of nonconformance is the cost associated with not adhering to quality standards, resulting in defects or problems. Cost-benefits refer to the analysis comparing the strengths and weaknesses of alternatives.

Discussion
CheburaatorsOption: C

Sunk costs