Opportunity cost
A)Is the value of another option that must be given up in order to achieve the first option.
B)Must be subtracted from the variable production cost to determine the minimum transfer price on an internal transfer.
C)Must be considered in determining the transfer price only when the company has sufficient excess capacity to meet demand.
D)Refers to the fixed cost applied to products that are transferred between divisions.

Question

Quizplus · Accepted Answer

Opportunity cost refers to the value of the alternative option that must be given up in order to pursue the chosen option. For example, if a company chooses to invest in a new project, the opportunity cost is the potential returns on other projects that could have been pursued instead. It is important to consider opportunity cost when making business decisions to ensure that the most beneficial option is chosen.

Opportunity Cost