Business, 26.07.2019 03:30 SisterMina

Adivision can sell externally for $60 per unit. its variable manufacturing costs are $35 per unit, and its variable marketing costs are $12 per unit. what is the opportunity cost of transferring internally, assuming the division is operating at capacity? $13. $25. $47. $35.

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Let us calculate the total variable cost; It is 35+12=47$. The opportunity cost refers to the profit that is lost if we stop one activity in favor of another. In this case, the posiible profit is 60-47=13$. Thus, if it is transferred, we have that the profit lost is 13$ and this is the opportunity cost.

Answer from: camillaowens206

Answering the question, the opportunity cost of transferring internally is $13.

A division can sell $60 per unit Variable manufacturing cost per unit = $35 Variable marketing cost per unit = $12 Cost of transferring internally =? Further Explanation

To determine the opportunity of transferring internally, firstly you have to calculate the total variable cost, which can be expressed as:

Variable manufacturing cost per unit + variable marketing cost per unit

$35 + $12

$47

Therefore, the total variable cost is $47

Since the opportunity cost is the profit that could not be realized as a result of putting one activity ahead of others, then to calculate the opportunity of transferring internally, we have to subtract what the division can sell per unit from the total variable costs.

This can then be expressed as:

$60 - $47

= $13

Therefore, the opportunity cost of transferring internally is $13.

Opportunity cost refers to benefits a company misses on when such a company has to choose an alternative instead of another. Companies can use opportunity costs to decide if they are faced with multiple options when making decisions.

The formula for opportunity cost is as follows:

Opportunity cost = return of best forgone option - return on chosen option

FO represents the return of best forgone option while CO represents the return on the chosen option.

LEARN MORE:

Zeke Company sells 25,000 units at $21 per unit. Variable costs are $10 per unit Stuart Corporation is a manufacturing company that makes small electric motors it sells for $53 per unit. The variable costs of production are $35 per motor, and annual fixed costs of production are $396,000.

KEYWORDS:

opportunity costoperating capacityalternativebest forgonechosen option

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