ECONOMICS

Detailed explanation-1: -The most favourable alternative use of the capital tied up in inventories is called its ‘opportunity cost’. The higher the value of inventories held and the more capital used to finance them, then the greater will be this opportunity cost.

Detailed explanation-2: -The opportunity cost of capital is the incremental return on investment that a business foregoes when it elects to use funds for an internal project, rather than investing cash in a marketable security.

Detailed explanation-3: -Opportunity cost is the value of the next best alternative forgone as a result of making a decision. Opportunity cost is a function of scarcity. Because of scarcity, people are faced with trade-offs in how they use their limited resources.

Detailed explanation-4: -Opportunity cost is generally defined as the price of foregoing other, possibly more advantageous uses for money that is being tied up in the stored goods. Opportunity costs should be considered when analyzing your business’s inventory carrying costs.

Detailed explanation-5: -Opportunity cost is commonly defined as the next best alternative. Also, known as the alternative cost, it is the loss of gain which could have been gained if another alternative was chosen. It can also be explained as the loss of benefit due to a change in choice.