What Is the Opportunity Cost of Making a Component Part

question 34

Multiple Choice

What is the opportunity cost of making a component part in a factory with no excess capacity?

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

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Definitions:

Book Value Per Share

A financial measure that calculates a company's net asset value divided by the number of outstanding shares.

Net Income

The total profit of a company after all expenses and taxes have been deducted from revenues.

Price-Earnings Ratio

Price-earnings ratio is a valuation metric comparing a company's current share price relative to its per-share earnings, used to gauge if a stock is over or undervalued.

Earnings Per Share

A measure of a company's profitability, calculated as the profit available to common shareholders divided by the average number of common shares outstanding.