Question

A division can sell externally for $40 per unit. Its variable manufacturing costs are $15 per unit, and its variable marketing costs are $6 per unit. The variable marketing costs can be avoided if the units are transferred internally. What is the opportunity cost of transferring internally, assuming the division is operating at capacity

Answer 1

$19

Step-by-step explanation:

The opportunity cost of transferring internally is the lost contribution of selling the units externally.

Contribution = Sales - Variable Costs

where,

Sales = $40

Variable Costs = $15 + $6 = $21

therefore,

Lost Contribution = $40 - $21 = $19

Conclusion

the opportunity cost of transferring internally is $19.