Question

Which is the most correct answer that defines Opportunity Cost?

The cost of already using an asset or a person already employed who was put on a new project.

The cost of already using an asset by the firm

The cost of already using a person on a new project.

The cost of doing business of the firm

In regards to personal finances, "zero-based budgeting" is:

Stopping all spending on incidentals such as dining out or entertainment

The practice of budgeting every dollar of income received

A budgeting method where you put 'zero' dollars on your credit card

The ability to pay all of your bills each month with something left for 'whatever'

Which of the following steps in the preparation of a master budget would logically be performed first?

Prepare a budgeted balance sheet.

Prepare a sales forecast.

Prepare production schedules.

Prepare a cash budget

Answer 1

1. The cost of already using an asset or a person already employed who was put on a new project defines the opportunity cost.

The reason behind is that in an opportunity cost we estimate the benefit that we have sacrificed in choosing the alternative over the next best alternative.

2. The practice of budgeting every dollar of income received is the "zero-based budgeting".

This is because here we justify each and every expense before including it in a budget.

3. Prepare a sales forecast is the first step to be performed first.

Preparation of a sales forecast means estimating the projected sales that is likely to occur in future. It is a basic step as the amount of expenditure on each and every unit of the production depends on the sales projection.