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Is the Opportunity Cost of Idle Capacity Zero? Coase (1938) Versus Managerial Accounting Circa 2000

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Author Info

  • Ramamurthy oRamjio Balakrishnan

    () (University of Iowa, Henry B. Tippie College of Business)

  • K. Sivaramakrishnan

    () (Department of Accounting)

  • Shyam NMI Sunder

    () (School of Management)

Abstract

Many 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 Info

Paper provided by Yale School of Management in its series Yale School of Management Working Papers with number ysm210.

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Date of creation: 21 Jul 2001
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Handle: RePEc:ysm:somwrk:ysm210

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Web page: http://icf.som.yale.edu/
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Related research

Keywords: Opportunity Cost; Resource Management; Time-Based Costing; Resource Granularity; Decision-Making;

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