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备考信息
Egan Co. owns land that could be developed in the future. Egan estimates it can sell the land for $1,200,000, net of all selling costs. If it is not sold, Egan will continue with its plans to develop the land. As Egan evaluates its options for development or sale of the property, what type of cost would the potential selling price represent in Egan's decision?
a. Variable.
b. Sunk.
c. Opportunity.
d. Future.
Explanation
Choice "c" is correct. Opportunity cost is the potential benefit lost by selecting a particular course of action. If the land is developed rather than sold, the potential selling price foregone is an opportunity cost.
Choice "b" is incorrect. Sunk costs are those costs that have already been incurred, are unavoidable in the future and will not vary with the course of action taken. The potential selling price is not a sunk cost.
Choice "d" is incorrect. This is a distracter option.
Choice "a" is incorrect. Variable costs are costs of production that change in total with changes in volume. The potential selling price is not a variable cost.
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