Managers should generally consider opportunity costs in both "keep or drop" and "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) Depreciation on new machinery
D) Market share

Question

Quizplus · Accepted Answer

The opportunity cost that managers should consider in both "keep or drop" and "make or buy" decisions is the benefits from alternate uses of released capacity. This refers to the potential gain that the company could have achieved if it opted for a different use of its resources. For example, if the company decides to drop a product line, it could allocate the resources previously used for that product line to a different product line or investment opportunity. Similarly, if the company decides to make a product instead of buying it from a supplier, it could have used the resources to invest in a different project or to expand its production capacity. Therefore, managers should carefully consider the potential benefits of alternative uses of their resources before making a decision. Avoidable fixed costs, depreciation on new machinery, and market share are not opportunity costs that are relevant in both situations.

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