Commercial Applications
Assertion (A): Opportunity costs are relevant in business decision making.
Reason (R): Opportunity cost reflects the value of the next best alternative foregone when a decision is made.
- A is true but R is false
- A is false but R is true
- Both A and R are true and R explains A.
- Both A and R are true but R does not explain A.
Cost
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Answer
Both A and R are true and R explains A.
Reason — Both statements are true. Opportunity cost is highly relevant to business decision making because every decision involves choosing one alternative over others, and managers must consider what is being sacrificed. The Reason correctly explains the Assertion: it is precisely because opportunity cost measures the value of the next best alternative foregone that it becomes a key consideration in decisions about pricing, make-or-buy, accepting/rejecting orders and resource allocation.
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Related Questions
Indirect costs can be directly traced to a specific cost object, such as a product or department.
- True
- False
What describes variable costs in terms of cost behaviour?
(1) They stay constant regardless of changes in activity. (2) They change proportionally with changes in activity levels. (3) They include both direct and indirect components. (4) They are fixed in nature.
- 1 & 2
- 3 & 4
- Only 1
- 2 & 3
It refers to the expenses incurred on those items which are not directly chargeable to production. Salaries of timekeeper, foremen and watchmen are examples of this cost. This cost is incurred for the concern as a whole rather than a particular product.
- Direct cost
- Indirect cost
- Selling cost
- Advertising cost
Which definition best describes indirect costs?
- Indirect costs are those costs which are not controlled directly by a manager.
- Indirect costs are those costs which cannot be directly associated with a product or service.
- Indirect costs are always fixed.
- Indirect costs are always manufacturing overhead cost.