Is the Opportunity Cost of Idle Capacity Zero? Coase (1938) Versus Managerial Accounting Circa 2000

Posted: 23 Sep 2002

See all articles by Ramji Balakrishnan

Ramji Balakrishnan

University of Iowa - Department of Accounting

Shyam Sunder

Yale University - School of Management; Yale University - Cowles Foundation

Shiva Sivaramakrishnan

Rice University

Multiple version iconThere are 2 versions of this paper

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 Classification: L21, M21, M40, M46

Suggested Citation

Balakrishnan, Ramji and Sunder, Shyam and Sivaramakrishnan, Shiva, Is the Opportunity Cost of Idle Capacity Zero? Coase (1938) Versus Managerial Accounting Circa 2000. Indian Accounting Review, Volume 6, No. 1, pp. 13-26, June 2002. Available at SSRN: https://ssrn.com/abstract=326341

Ramji Balakrishnan (Contact Author)

University of Iowa - Department of Accounting ( email )

108 Pappajohn Business Building
Iowa City, IA 52242-1000
United States
319-335-0958 (Phone)
319-335-1956 (Fax)

Shyam Sunder

Yale University - School of Management ( email )

165 Whitney Avenue
P.O. Box 208200
New Haven, CT 06520-8200
United States
203-432-6160 (Phone)

HOME PAGE: http://www.som.yale.edu/faculty/sunder/

Yale University - Cowles Foundation

Box 208281
New Haven, CT 06520-8281
United States

Shiva Sivaramakrishnan

Rice University ( email )

6100 South Main Street
Houston, TX 77005-1892
United States

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