Product V72 sells for $20 per unit as is, but if enhanced it can be sold for $25 per unit.The enhancement process will cost $52,000 for 12,000 units.If the 12,000 units of Product V72 are sold as is without further processing, the company:
A)will incur an incremental profit of $8,000.
B)will incur an opportunity cost of $8,000.
C)will incur an incremental profit of $5 per unit.
D)will incur an incremental loss of $5 per unit.

Question

Quizplus · Accepted Answer

The opportunity cost is the potential profit lost by not enhancing the product. Enhancing increases revenue by $5 per unit (12,000 units x $5 = $60,000) but costs $52,000, resulting in a net gain of $8,000 if enhanced. Not enhancing incurs an opportunity cost of $8,000.

Product V72 Sells for $20 Per Unit as Is, but If