Hitch Company currently produces 10,000 units of a key part at a total cost of $512,000.Variable costs are $300,000.Of the fixed cost, $140,000 relate specifically to this part.The remaining fixed costs are unavoidable. Another manufacturer has offered to supply the part for $48 per unit.The facilities currently used to manufacture the part could be used to manufacture a new product with an expected contribution margin of $55,000.Alternately, the facilities could be rented out at $68,000._____ is the opportunity cost to Hitch Company to make the part:
A)$68,000
B)$55,000
C)$440,000
D)None of these answers is correct

Question

Quizplus · Accepted Answer

The opportunity cost is the best alternative forgone by choosing a particular action. In this case, the best alternative to making the part is renting out the facilities for $68,000, which is the highest value Hitch Company foregoes by choosing to manufacture the part instead.

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