The selling divisionâs unit sales price is $25 and its unit variable cost is $15. its capacity is 10,000 units. fixed costs per unit are $6. current outside sales are 8,000 units. what is the selling divisionâs opportunity cost per unit from selling 2,000 units to the purchasing division

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21-07-2017
Business

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The selling divisionâs unit sales price is $25 and its unit variable cost is $15. its capacity is 10,000 units. fixed costs per unit are $6. current outside sales are 8,000 units. what is the selling divisionâs opportunity cost per unit from selling 2,000 units to the purchasing division

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meerkat18 meerkat18 · Answer 1 · 2017-08-03T10:06:05+02:00

The opportunity cost in here is the cost the selling division would give up to sell to purchasing division. Since there is enough capacity to produce units to be sold to the purchasing division, the only opportunity cost will be the difference of their selling price to outside customers with the variable cost and fixed cost per unit. The total cost of a product per unit is $21. Deducting this amount to the selling price which is $25, we can get $4 per unit or a total cost of $8000 ($4 x 2000 units) which is the opportunity cost for this transaction.