Buford Company rents out a small unused portion of its factory to another company for $1,000 per month. The rental agreement will expire next month, and rather than renew the agreement Buford Company is thinking about using the space itself to store materials. The term to describe the $1,000 per month is:
A) sunk cost.
B) period cost.
C) opportunity cost.
D) variable cost.

Question

Quizplus · Accepted Answer

The $1,000 per month represents the opportunity cost of using the space for storing materials, as the company would be giving up the revenue it could have gained by continuing to rent it out. It is not a sunk cost as it is not a cost that has already been incurred and cannot be recovered, nor is it a period cost or variable cost as it is not directly related to the company's ongoing operations.

Buford Company Rents Out a Small Unused Portion of Its