Jefferson & Co.is considering adding a product line that would utilize floor space in their manufacturing plant which is currently used for storage.Jefferson & Co.will need to rent new storage space elsewhere.The floor space would be considered a(n)
A)variable cost.
B)opportunity cost.
C)sunk cost.
D)irrelevant cash flow.

Question

Quizplus · Accepted Answer

The cost of renting new storage space elsewhere represents the opportunity cost of using the manufacturing plant floor space for the new product line. The opportunity cost is the value of the next best alternative foregone. The floor space is not a variable cost, as it is not directly linked to the production volume. It is not a sunk cost because it is not a cost that has already been incurred and cannot be recovered. It is not an irrelevant cash flow because it is a relevant cost that should be considered in the decision-making process.