Burt 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 Burt Company for making the part.
A) ($20,000)
B) $25,000
C) $55,000
D) ($10,000)

Question

Quizplus · Accepted Answer

The opportunity cost is the highest value of the next best alternative use of the facilities, which is renting them out for $55,000.

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