Harrison Company determines that an opportunity cost of an alternate course of action is relevant to a make or buy decision.Which statement is true of the opportunity cost?
A)Should be added to the "Buy" costs
B)Should be subtracted from the "Make" costs
C)Should be added to the "Make" costs
D)Should be ignored if it does not involve a cash outlay.

Question

Quizplus · Accepted Answer

The opportunity cost should be added to the "Make" costs. This is because if the company chooses to make the product instead of buying it, they are giving up the opportunity to use their resources (such as labor and equipment) for another project that could generate income. This opportunity cost should be considered in the decision-making process.

Harrison Company Determines That an Opportunity Cost of an Alternate