Is the Opportunity Cost of Idle Capacity Zero? Coase (1938) Versus Managerial Accounting Circa 2000
AbstractMany accounting textbooks state that the opportunity cost of idle fixed assets is zero. A few exceptions may refer to factors such as repair and overhaul, employee vacation and congestion that give rise to strictly positive opportunity cost. We show that in important and frequently encountered situations, idled assets have positive opportunity cost arising from extension of their useful life. We also present a simple framework to help managers identify such situations and correctly assess opportunity costs.
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Bibliographic InfoPaper provided by Yale School of Management in its series Yale School of Management Working Papers with number ysm210.
Date of creation: 21 Jul 2001
Date of revision:
Opportunity Cost; Resource Management; Time-Based Costing; Resource Granularity; Decision-Making;
Other versions of this item:
- Ramamurthy oRamjio Balakrishnan & K. Sivaramakrishnan & Shyam NMI Sunder, 2002. "Is the Opportunity Cost of Idle Capacity Zero? Coase (1938) Versus Managerial Accounting Circa 2000," Yale School of Management Working Papers ysm302, Yale School of Management.
- M21 - Business Administration and Business Economics; Marketing; Accounting - - Business Economics - - - Business Economics
- M40 - Business Administration and Business Economics; Marketing; Accounting - - Accounting - - - General
- L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
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