Question

Kyle Burroughs has decided to put $25 more per week in his savings account. He knows this will reduce his ability to go out to eat each week but thinks building his savings is important. This would be an example of:

A)a budget variance.
B) a balance sheet.
C) an accounting error.
D) an opportunity cost.

Answer 1

Answer:

D) an opportunity cost.

Explanation:

Opportunity cost is considered the real cost in economics, it is the benefit that is forgone for not taking the next best alternative when a choice is made.

Kyle Burroughs is faced with two choices of either going out to eat every week or use the money to build his savings account, since Kyle chose to build his savings account by saving $25 weekly instead of going to eat every week with the $25, the opportunity cost of that choice (i.e. build his savings account) is the benefit from going out to eat which he forgo.