A cabinet firm paid $5,000 for 10,000 pieces of cabinet hardware. The firm has used 4,000 pieces of hardware and is holding the remaining 6,000 pieces in inventory. The current market price for the 6,000 pieces of hardware is $2,800. What is the opportunity cost of holding the 6,000 pieces of hardware in inventory?

Question

Quizplus · Accepted Answer

The opportunity cost is the cost of the next best alternative foregone, which in this case is the current market price of $2,800. It does not make sense to use the initial cost of $5,000 or the cost of the pieces used, as these costs have already been incurred and cannot be recovered. Therefore, the opportunity cost of holding the 6,000 pieces of hardware in inventory is $2,800.

A Cabinet Firm Paid $5,000 for 10,000 Pieces of Cabinet