MANAGEMENT

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: -What is the Opportunity Cost of Capital? 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: -It is within the context of scarcity that economists define what is perhaps the most important concept in all of economics, the concept of opportunity cost. Opportunity cost is the value of the best alternative forgone in making any choice.

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 (also known as “alternative cost, ”) is the difference between a project’s cost estimate and another option that must be foregone in order to implement the project. Every choice we make also means giving up another option.