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

Ramamurthy oRamjio Balakrishnan (), K. Sivaramakrishnan () and Shyam Sunder
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Ramamurthy oRamjio Balakrishnan: University of Iowa, Henry B. Tippie College of Business
K. Sivaramakrishnan: Department of Accounting

Yale School of Management Working Papers from Yale 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.

Keywords: Opportunity Cost; Resource Management; Time-Based Costing; Resource Granularity; Decision-Making (search for similar items in EconPapers)
JEL-codes: L21 M21 M40 (search for similar items in EconPapers)
Date: 2001-07-21
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Citations: View citations in EconPapers (1)

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Working Paper: Is the Opportunity Cost of Idle Capacity Zero? Coase (1938) Versus Managerial Accounting Circa 2000 (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:ysm:somwrk:ysm210

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