If capacity constraints prevent a segment from meeting internal and external demand for a product,the opportunity cost of selling internally equals ________.
A) the variable cost of producing the product
B) the controllable costs of producing the product
C) the contribution margin the producing segment could have received from selling in the external market rather than the internal market
D) the variable cost plus the avoidable fixed cost of producing the product

Question

Quizplus · Accepted Answer

The opportunity cost of selling internally is the potential revenue that the producing segment could have earned by selling in the external market instead of the internal market. This potential revenue is equal to the contribution margin of the product, which is the revenue minus variable costs. Options A, B, and D do not take into account the lost revenue from external sales and therefore do not accurately reflect the opportunity cost.

If Capacity Constraints Prevent a Segment from Meeting Internal and External