Question

Flavor Enterprises has been approached about providing a new service to its clients. The company will bill clients $180 per hour; the related hourly variable and fixed operating costs will be $85 and $14, respectively. If all employees are currently working at full capacity on other client matters, the per-hour opportunity cost of being unable to provide this new service is:

Answer 1

Flavor Enterprises

The per-hour opportunity cost of being unable to provide this new service is:

$81.

Step-by-step explanation:

a) Data and Calculations:

Amount billable to clients per hour = $180

Variable operating cost per hour = $85

Fixed operating cost per hour = 14

Total operating cost per hour = $99

Opportunity cost = $180 - $99 = $81

b) The opportunity cost for Flavor Enterprises being unable to provide this new service is the net benefit that the enterprise will loss. While it costs the enterprise a total of $99 in operating cost per hour, the enterprise will receive $180 per hour in revenue. Therefore, the net benefit lost if the service is not provided per hour is the difference between the $180 revenue and the $99 operating costs, which equals $81.