XYZ, Inc. is considering adding a product line that would utilize floor space in their manufacturing plant which is currently used for storage. XYZ will need to rent new storage space elsewhere. The floor space would be considered a(n)
A) variable cost.
B) opportunity cost.
C) sunk cost.
D) irrelevant cash flow.

Question

Quizplus · Accepted Answer

The floor space is currently being used for a different purpose and has an opportunity cost associated with it if it is used for the new product line. The cost of renting new storage space elsewhere is a variable cost. Sunk costs are costs that have already been incurred and are not relevant to this decision. The cash flow associated with this decision is relevant, not irrelevant.

XYZ, Inc Is Considering Adding a Product Line That Would Utilize