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A company's unit costs based on 100000 units are: Variable costs$75Fixed costs30 The normal unit sales price per unit is $166
A company's unit costs based on 100000 units are:
Variable costs$75Fixed costs30
The normal unit sales price per unit is $166. A special order from a foreign company has been received for 5000 units at $135 a unit. In order to fulfill the order, 4000 units of regular sales would have to be foregone.
The opportunity cost associated with this order is
$300000.
$540000.
$664000.
$135000.
Expert Solution
Computation of Opportunity cost of the special order:
Given,
Selling price per unit = $166
Variable cost per unit = $75
Fixed cost per unit = $30
Profit per unit = Selling price per unit- Variable cost per unit
= 166-75
= $91
If the special order of 5,000 units is accepted, 4,000 units of the regular sales would have to be forgone.
Opportunity cost of the special order = Number of units forgone * Profit per unit
= 4,000 * 91
Opportunity cost of the special order = $364,000
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