Division A has variable manufacturing costs of $25 per unit and fixed costs of $5 per unit.Division A is operating at capacity,what is the opportunity cost of an internal transfer when the market price is $35?
A) $5.
B) $10.
C) $25.
D) $30.

Question

Quizplus · Accepted Answer

The opportunity cost of an internal transfer is equal to the market price minus the variable manufacturing cost. In this case, the variable manufacturing cost is $25 and the market price is $35. Therefore, the opportunity cost is $35 - $25 = $10. The fixed costs are not relevant to the opportunity cost calculation in this scenario since they are sunk costs and do not change with the decision of whether to transfer or not.

Division a Has Variable Manufacturing Costs of $25 Per Unit