Question

A company's unit costs based on 100,000 units are:

Variable costs $75
Fixed costs 30
The normal unit sales price per unit is $165. A special order from a foreign company has been received for 5,000 units at $135 a unit. In order to fulfill the order, 3,000 units of regular sales would have to be foregone.
The opportunity cost associated with this order is:_________.
a. $495,000
b. $270,000
c. $405,000
d. $225,000

Answer 1

Answer: b. $270,000

Step-by-step explanation:

The opportunity cost is the contribution margin of sales that would be foregone if the special order was fulfilled.

Contribution margin = Selling price - Variable cost

= 165 - 75

= $90

Total contribution cost for the 3,000 units that will be foregone:

= 90 * 3,000

= $270,000