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The Selling Division's 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 Division's opportunity cost per unit from selling 3,000 units to the Purchasing Division?
A) $10
B) $25
C) $4
D) $0

Question

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The Selling Division's 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 Division's opportunity cost per unit from selling 3,000 units to the Purchasing Division?
A) $10
B) $25
C) $4
D) $0

Quizplus · Accepted Answer

The opportunity cost per unit for the Selling Division is the contribution margin per unit it would forgo by not selling the units externally. The contribution margin per unit is calculated as the selling price per unit ($25) minus the variable cost per unit ($15), which equals $10. Fixed costs are not considered in the calculation of opportunity cost per unit because they are incurred regardless of whether the units are sold internally or externally.

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