Lancaster Company currently produces 10,000 units of a key part at a total cost of $210,000.Variable costs are $170,000.Of the fixed cost, $10,000 relate specifically to this part.The remaining fixed costs are unavoidable. Another manufacturer has offered to supply the part for $190 per unit.The facilities currently used to manufacture the part could be used to manufacture a new product with an expected contribution margin of $25,000.Alternately, the facilities could be rented out at $55,000._____ is the opportunity cost to Lancaster Company for making the part.
A)$20,000)
B)$55,000
C)$25,000
D)$10,000)

Question

Quizplus · Accepted Answer

The opportunity cost is the highest value forgone by not pursuing the next best alternative, which in this case is renting out the facilities for $55,000.

Lancaster Company Currently Produces 10,000 Units of a Key Part