The opportunity cost of making a component part in a factory with no excess capacity is the: (CMA adapted)
A) variable manufacturing cost of the component.
B) fixed manufacturing cost of the component.
C) total manufacturing cost of the component.
D) net benefit foregone from the best alternative use of the capacity requireD.
Opportunity costs and benefits are all about amounts foregone.

Question

Quizplus · Accepted Answer

The opportunity cost refers to the next best alternative foregone, and in a factory with no excess capacity, making a component part would require the use of limited resources that could have been used to produce other products or generate revenue through outsourcing. Therefore, the opportunity cost of making a component part in this scenario is the net benefit foregone from the best alternative use of the capacity required. Choices A, B, and C only refer to the manufacturing cost of the component, but do not consider the opportunity cost of producing it.

The Opportunity Cost of Making a Component Part in a Factory