Managers should generally consider opportunity costs in both "keep or drop" and "make or buy" decisions. Which of the following is an opportunity cost they should consider in both situations?
A) Avoidable fixed costs
B) Product diversity
C) Depreciation on new machinery
D) Benefits from alternate uses of released capacity

Question

Quizplus · Accepted Answer

Opportunity cost refers to the benefits that are foregone by choosing one alternative over another. In both "keep or drop" and "make or buy" decisions, if choosing one option over another releases capacity that could be used for other profitable activities, the benefits from those alternate uses represent an opportunity cost. Avoidable fixed costs, product diversity, and depreciation on new machinery are specific considerations that may not always represent foregone benefits from choosing one alternative over another.

Managers Should Generally Consider Opportunity Costs in Both "Keep or Drop