Question

Benefit that is foregone as a result of pursuing some course of action is called

a. Transfer cost

b. Sunk cost

c. Fixed cost

d. Opportunity cost

Select one:

a. Sunk cost

b. Fixed cost

c. Opportunity cost

d. Transfer cost

Answer 1

D) Opportunity cost is the correct alternative.

Explanation : It is a sacrifice of benefits or loss of other alternatives when one alternative is chosen. When different alternatives are available and any single alternative has been chosen for further consideration then loss or sacrifice of benefits for not choosing other alternatives can be expressed as opportunity cost.

Why other alternatives are not correct ? :

A) Transfer cost : It is a cost of moving an item from one place to another, including loading and unloading , transport cost , administration cost etc. It is not considered as a sacrifice of benefits of not choosing an alternative .

B) Sunk cost : It is a cost which is already occurred and has no potential for recovery in future . Example : Marketing campaign expenses ,which has been already paid. It is also not a benefit that has been foregone .

C) Fixed cost : It is a cost which does not change with the fluctuations in the quantity  of production . Example : Depreciation expense .It is not a benefit that has been foregone .

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