Andrew has decided to open an online store that sells home and garden products. After searching around, he chooses the software company Initech to provide the software for his website since their product required the least amount of specialized investments for him to use it. They agreed upon price of $6,000. To use Initech's software, Andrew makes $1,800 in sunk capital investments and spends 45 hours learning how to use Initech's software, which is very different from other software packages. Both Andrew and Initech view Andrew's time as worth $30 per hour and Initech is fully aware of the investments Andrew must make to use their product. After Andrew's investments were made, Initech came to Andrew and asked for more money. How much do you think they asked for?

Question

Business

Edith Compton

12 May, 16:47

Andrew has decided to open an online store that sells home and garden products. After searching around, he chooses the software company Initech to provide the software for his website since their product required the least amount of specialized investments for him to use it. They agreed upon price of $6,000. To use Initech's software, Andrew makes $1,800 in sunk capital investments and spends 45 hours learning how to use Initech's software, which is very different from other software packages. Both Andrew and Initech view Andrew's time as worth $30 per hour and Initech is fully aware of the investments Andrew must make to use their product. After Andrew's investments were made, Initech came to Andrew and asked for more money. How much do you think they asked for?

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Answers (1)

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Jaycee Kramer · Answer 1

Answer:$4650

Explanation:

The cost that is recoverable is $30 per hour that was agreed as the hour to be spent in learning the soft ware. The sunk cost it's an irrecoverable cost that does influence decision making. When the agreed leaning cost of $30 per hr for 45hr of $1350 is deducted from the asking price of $6000 we have the $4650