Which of the following is an opportunity cost that should be considered in an outsourcing decision?
A) Avoidable fixed costs
B) Benefits from alternate uses of released capacity
C) Unavoidable fixed costs
D) taxation implications of the decision

Question

Quizplus · Accepted Answer

Opportunity cost refers to the benefits that could have been gained from the next best alternative foregone. When a company outsources a certain function, it frees up its personnel and resources which can be utilized in other activities. The benefits that could have been derived from these alternate uses of released capacity are the opportunity cost that must be considered while making the outsourcing decision. Avoidable and unavoidable fixed costs are sunk costs and do not affect the decision. Taxation implications are important but do not fall under the category of opportunity costs.

Which of the Following Is an Opportunity Cost That Should