Which statement best describes an opportunity cost?
Correct answer: C. A benefit sacrificed by choosing one alternative
- A. A past cost that cannot be recovered
- B. A cost recorded in the financial ledger
- C. A benefit sacrificed by choosing one alternative
- D. A fixed cost allocated to a department
Explanation
Opportunity cost is the benefit forgone when one alternative is selected instead of the next best alternative. A sunk cost, by contrast, is a past cost that cannot be recovered and is generally irrelevant to a current decision.
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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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