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

Opportunity cost is the cost of giving up the next best alternative. In a make or buy decision, the opportunity cost is the revenue that could have been earned by using the production capacity for another product. Since it is a cost that would be incurred if the company chooses to make instead of buy, it should be added to the "Make" costs when making the decision.

Harrison Company Determines That an Opportunity Cost of an Alternate