Sam quit his job as an accountant with We Keep Books Accurately to open his own accounting firm.He earned $40,000 with the accounting firm We Keep Books Accurately.During the current year Sam had revenues of $150,000 and total expenses of $110,000.For Sam the opportunity cost of going into business was

Question

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The opportunity cost of going into business is the value of the best alternative forgone. In this case, the best alternative forgone is the salary that Sam would have earned if he had stayed with We Keep Books Accurately. Since Sam earned $40,000 with his previous employer, the opportunity cost of going into business is $40,000. The revenues and expenses of Sam's business are irrelevant to the calculation of opportunity cost.

Sam Quit His Job as an Accountant with We Keep