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

Question

Quizplus · Accepted Answer

Benefits from alternate uses of released capacity are an opportunity cost that managers should consider in both "keep or drop" and "make or buy" decisions. This refers to the potential benefits that could be derived from using the resources (such as machinery or labor) that would be released if the decision to drop a product line or outsource a function is made. By opting to keep or make something in-house, the company is forfeiting the potential benefits from other uses of that capacity. Avoidable fixed costs, amortization on new machinery, and market share are not opportunity costs that are relevant to both "keep or drop" and "make or buy" decisions.

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