A company will only incur an opportunity cost for a special order when:
A) Current capacity is constrained
B) The price of the order is less than its variable cost
C) The cost of the order is greater than the average cost for current business
D) Qualitative factors can be ignored

Question

Quizplus · Accepted Answer

Opportunity cost arises when a company has to choose between two alternatives and by choosing one, it loses out on the benefits of the other. In the case of a special order, if the company has spare capacity, it can fill the order without incurring any opportunity cost. However, if the company is operating at full capacity and has to take on the special order, it will have to forgo the benefits of producing the regular product during that time, which will be the opportunity cost. Therefore, only when the current capacity is constrained will the company incur an opportunity cost for a special order.

A Company Will Only Incur an Opportunity Cost for a Special