I BRO Company owns land that they could develop in the futur

I

BRO Company owns land that they could develop in the future. BRO estimates it can sell the land to Ritter Inc. for $950,000 net of all selling costs. If the land is not sold, BRO will continue with its plans to build three single-family homes on the land. If BRO decided to develop the property, what type of cost would the potential selling price of the land represent in BRO\'s decision?

1.Sunk

2. Incremental

3. Opportunity

4. Variable

Please explain answer. Thank you.

Solution

IF PROPERTY IS BUILT UP ON THE LAND THEN , HE WILL NOT BE ABLE TO SALE THE LAND. HE HAVE TO SACRIFICE THE SALE PRICE OF THE LAND FOR BUILDING THE PROPERTY.

what type of cost would the potential selling price of the land represent in BRO\'s decision?

ANSWER: (3) OPPORTUNITY COST

ITS THE COST OF SACRIFICING THE NEXT BEST ALTERNATIVE AVAILABLE FOR CHOOSING FIRST OPTION.