Question

The Orange division’s unit sales price is $50, its unit variable cost is $30, and the fixed cost per unit is $16. Orange has enough capacity to produce 10,000 units and it is currently selling 8,000 units externally. If the Orange division sells 2,000 units to the Colter division, what is the opportunity cost per unit of selling the product internally to the Orange division?

Answer 1

there is no opportunity cost

Step-by-step explanation:

Opportunity cost occurs when the transferring division has to forego its supply to the external market by supplying internally due to capacity limitation.

Since the Orange division has enough capacity to produce 10,000 units, it has excess capacity to meet the 2,000 units required by the Colter division without affecting is current supply of 8,000 units to the external market.

Thus there is no opportunity cost under the current circumstances.