Senin, 10 Oktober 2011

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

Ramji Balakrishnan The
University of lowa

K. Sivaramakrishnan
Texas A&M University

Shyam Sunder Yale
University



Revised:December 2001




© 2001. All rights reserved. Contact authors at ramji-balakrishnan@uiowa.edu, shiva@cgsb.tamu.edu, or shyam.sunder@yale.edu.



Is the Opportunity Cost of Idle Capacity Zero? Coase (1938) Versus Managerial Accounting Circa 2000
Abstract
Many accounting textbooks state that the opportunity cost of idle fixed assets is zero. A few ex­ceptions refer to repair, overhaul, employee vacation and congestion giving rise to 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 cost. JEL Codes: L2, M21, M41
Keywords Opportunity cost, Resource management, Time-based costing, Resource granularity, decision-making.

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