Question

Ysera Corporation is deciding whether to produce additional units of a product to fill a special order. Producing this order would require using additional factory space that they can instead rent out for $20,000. The $20,000 is considered a(n) ____________________ of filling the order.

Group of answer choices

opportunity cost

period cost

sunk cost

irrelevant cost

Answer 1

Answer

A. opportunity cost

Explanation:

Opportunity Cost refers to the value of the next best alternative sacrificed.

If the special order is not accepted, they can rent out the factory space for $ 20,000. So, $ 20,000 is the amount that company loses if it accepts the special order.

Note:

Period costs are costs and payments but this is a case of receipt, so, option b is not correct.

$ 20,000 is relevant for decision making and so it is not irrelevant or sunk cost.

Clearly, option a is correct and other options are incorrect.