A factory that makes a part has significant idle capacity. The factory's opportunity cost of making this part is equal to:
A) the variable manufacturing cost per unit.
B) the fixed manufacturing cost per unit.
C) the semivariable cost per unit.
D) the total manufacturing cost per unit.
E) zero.

Question

Quizplus · Accepted Answer

When a factory has significant idle capacity, the opportunity cost of making a part is essentially zero because the resources used to make the part would not have been used for anything else. This assumes that the production does not incur additional variable costs that would otherwise not be incurred. Fixed and semi-variable costs are already being incurred regardless of whether the part is made or not, and thus do not represent an additional cost specifically attributable to the production of the part in the context of idle capacity.

A Factory That Makes a Part Has Significant Idle Capacity