The Opportunity Cost of Making a Component Part in a Factory

question 72

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)net benefit foregone from the best alternative use of the capacity required.

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Definitions:

Activity-Based Costing

An accounting method that assigns costs to products or services based on the resources that they consume, aiming to provide more accurate costing information.

Implementation Costs

Expenses associated with putting a new system or process into use.

Overhead

The indirect costs of running a business that are not directly tied to a specific product or service, such as utilities, rent, and administrative salaries.

Volume-Based Measures

Metrics that assess performance or costs based on the quantity of output produced or services delivered.