Two years ago, a company spent $450,000 on a consulting study that focused on the technology of the firm's operations. Now it appears that technology is noncompliant with existing regulations. New technology must replace the old project. The $450,000 would represent:
A) an opportunity cost
B) an operating expenditure
C) a sunk cost
D) a revised cost

Question

Quizplus · Accepted Answer

The $450,000 spent on the consulting study is a sunk cost because it cannot be recovered and is now irrelevant to the decision at hand. The fact that the old technology is noncompliant with regulations means that it must be replaced regardless of the cost already incurred. Therefore, the previous cost should not be considered in making a decision about the replacement technology.

Two Years Ago, a Company Spent $450,000 on a Consulting