If a company has the option of leasing some factory space to another company or utilising it for another product line, then if the company chose the product line how should it handle the lost lease payments on the factory space?

Question

Quizplus · Accepted Answer

The lost lease payments should be included as an opportunity cost because it represents the potential revenue that could have been earned if the company leases the space to another business. By including it as an opportunity cost, the company can accurately evaluate the profitability and return on investment of the decision to utilize the space for another product line. Ignoring it or including only half of it as additional revenue would not provide an accurate picture of the financial impact of the decision.

If a Company Has the Option of Leasing Some Factory