Use the following information for questions
A company's unit costs based on 100,000 units are: $\begin{array}{l}
\text { Variable costs }&\$75 \
\text { Fixed costs }&30
\end{array}$ The normal unit sales price per unit is $165. A special order from a foreign company has been received for 5,000 units at $135 a unit. In order to fulfill the order, 3,000 units of regular sales would have to be foregone.
-The opportunity cost associated with this order is
A) $225,000.
B) $495,000.
C) $270,000.
D) $405,000.

Question

Use the following information for questions 
A company's unit costs based on 100,000 units are: $\begin{array}{l}
\text { Variable costs }&\$75 \
\text { Fixed costs }&30
\end{array}$ The normal unit sales price per unit is $165. A special order from a foreign company has been received for 5,000 units at $135 a unit. In order to fulfill the order, 3,000 units of regular sales would have to be foregone.
-The opportunity cost associated with this order is
A) $225,000.
B) $495,000.
C) $270,000.
D) $405,000.

Quizplus · Accepted Answer

The opportunity cost is calculated by considering the lost revenue from the 3,000 units of regular sales that would have to be foregone. The normal sales price per unit is $165, so the opportunity cost is 3,000 units * $165/unit = $495,000. However, since the question specifically asks for the opportunity cost associated with the special order, we must subtract the revenue that would be generated by the special order for these 3,000 units. The special order price is $135 per unit, so the revenue from the special order for these 3,000 units would be 3,000 units * $135/unit = $405,000. Therefore, the net opportunity cost is $495,000 (lost revenue from regular sales) - $405,000 (revenue from special order) = $90,000. However, the correct calculation for the opportunity cost should consider the total impact of the decision, including the profit contribution from the special order versus the profit from regular sales, which involves considering the variable costs and the fixed costs. The provided answer choices and explanation seem to have a discrepancy in calculation. The correct approach to calculate the opportunity cost should involve analyzing the profit difference between the special order and the regular sales, taking into account the variable costs and any potential changes in fixed costs. Given the information and the choices provided, none of the calculations directly lead to the answers given, indicating a possible misunderstanding in the explanation provided.

Use the Following Information for Questions a Company's Unit Variable costs $75 Fixed costs 30\begin{array}{l}\text { Variable costs }&\$75 \\\text { Fixed costs }&30\end{array} Variable costs Fixed costs ​$7530​

Use the Following Information for Questions
a Company's Unit $\begin{array}{l}\text { Variable costs }&\$75 \\\text { Fixed costs }&30\end{array}$