The Opportunity Cost of Making a Component Part in a Factory

question 123

Multiple Choice

The opportunity cost of making a component part in a factory with no excess capacity is the:

• A) Variable manufacturing cost of the component.
• B) Fixed manufacturing cost of the component.
• C) Total manufacturing cost of the component.
• D) Cost of the production given up to manufacture the component.
• E) Net benefit foregone from the best alternative use of the capacity required.

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Definitions:

Cash Deficiency

A financial state where the cash available is not sufficient to cover the debts or liabilities owed, indicating potential liquidity problems.

Excess Cash

Funds held by a company that exceed its operational and investment needs, often indicating financial health or the potential for dividends or expansion.

Cash Excess

Situations where an entity has more cash available than is immediately needed for operational expenses.

Minimum Cash Balance

The smallest amount of cash that a company aims to hold in its cash account to meet operational needs.