The profit forgone by capital investment in inventory rather than investment of capital to somewhere else is classified as ____________?
Correct answer: D. relevant opportunity cost of capitalHire An Accountant
- A. relevant purchase order costs
- B. relevant inventory carrying costs
- C. irrelevant inventory carrying costs
- D. relevant opportunity cost of capitalHire An Accountant
Explanation
Capital tied up in inventory cannot earn its return elsewhere, so the forgone profit is an opportunity cost of carrying inventory. It is therefore included among relevant inventory carrying costs.
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About Cost Accounting
Cost accounting measures and analyses the cost of producing goods or providing services for planning, control and pricing decisions. It covers direct and indirect costs, fixed and variable costs, job and process costing, break-even analysis, marginal costing, overhead allocation, and the difference between product cost and period cost.
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