CMA Foundation · Fundamentals of Financial and Cost Accounting · Classification of Costs (CAS 1)
Kapoor Industries owns a godown that it can either use for its own storage or rent out for Rs 45,000 per month. It also pays Rs 6,000 per month as maintenance in both cases. If the firm uses the godown itself, the opportunity cost per month is:
The opportunity cost is Rs 45,000 per month, being the rent forgone by not letting out the godown. The maintenance of Rs 6,000 arises under both alternatives, so it is not a benefit sacrificed and is excluded.
- ARs 51,000
- BRs 6,000
- CRs 39,000
- DRs 45,000Correct
Explanation
Opportunity cost is the benefit forgone from the best alternative, which is the rent of Rs 45,000. Maintenance of Rs 6,000 is incurred under both options, so it is not part of the opportunity cost. Subtracting it (Rs 39,000) wrongly nets a common cost.
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