If Company Xhas the option of leasing some factory space to Company Y or utilizing it for another product line, then how should Company X handle the lost lease payments on the factory space if it chooses the product line?

Question

Quizplus · Accepted Answer

Lost lease payments should be considered as an opportunity cost in the decision-making process because the company is forgoing a potential income. In other words, by choosing the product line, the company is giving up the income it could have earned if it leased the factory space to Company Y. Therefore, it is important to include it as an opportunity cost in the decision-making process to make an informed decision. Option A is incorrect because ignoring the lost lease payments would lead to an incomplete analysis of the costs and benefits. Option C is incorrect because lost lease payments cannot be considered as additional revenue for the project since they are not directly related to the product line. Option D is incorrect because the company needs to account for the lost lease payments in some way to make an informed decision.

If Company Xhas the Option of Leasing Some Factory Space