CA Inter P4 · Chapter 1 · Question 5 of 8
Saral Ltd owns a vacant godown that could be let out for ₹45,000 per month. The company decides to use the godown itself for a special order lasting 4 months. What is the opportunity cost of the godown for the special order?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) ₹1,80,000
Explanation
Opportunity cost is the value of the benefit sacrificed by choosing one alternative over the next best one. By using the godown, the company gives up rent of ₹45,000 per month for 4 months = ₹1,80,000. It is a relevant cost even though no cash is paid. The annual rent is not relevant because the godown is used only for 4 months.
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