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 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: L21 M21 M40 (search for similar items in EconPapers)
Date: 2002-09-23
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Working Paper: Is the Opportunity Cost of Idle Capacity Zero? Coase (1938) Versus Managerial Accounting Circa 2000 (2001)
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Persistent link: https://EconPapers.repec.org/RePEc:ysm:somwrk:ysm302

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