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?
A) Opportunity cost
B) Cost of nonconformance
C) Sunk costs
D) Cost-benefits

Question

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?
A) Opportunity cost  
B) Cost of nonconformance
C) Sunk costs
D) Cost-benefits

Quizplus · Accepted Answer

The monies that have already been invested in the existing solution are called sunk costs. Sunk costs are the funds that have been "sunk" into the solution and are no longer available. Answer: A is incorrect. The opportunity cost is when there are two or more solutions to choose from, but only one can be selected. The opportunity cost is the total amount of the opportunities that cannot be selected. Answer: B is incorrect. The cost of nonconformance describes the cost of not conforming to quality, such as lost sales, lost work, defects, and even safety considerations. Answer: D is incorrect. It is a ratio to compare the costs of a solution to the benefits received for the costs.

An Organization Has Invested $750,000 into a Technology to Help