Question

The opportunity cost of making a component part in a factory with excess capacity for which there is no alternative use is: the variable manufacturing cost of the component. zero. the total manufacturing cost of the component. the fixed manufacturing cost of the component.

Answer 1

Answer:

Zero

Explanation:

As we know that

Opportunity cost is the net benefit arise from the loss suffered from the chosen option.

In the given situation, it is mentioned that there is no alternative use for the excess capacity for the factory and therefore no gain or profit foregone.

In addition, the Fixed Manufacturing cost remains fixed whether production increased or not . Only incremental or avoidable fixed costs will be relevant for decision making.

While on the other hand , the variable costs are costs which increases or decreases depend on increase or decrease in production volume.

If there is an excess capacity utilized for making additional components so  it will increase in proportion to increase in production volume and vice versa.

And, the Total Manufacturing cost is the combination of total variable cost and fixed costs, hence is not an opportunity cost as mentioned above