Flavor Enterprises has been approached about providing a new service to its clients. The company will bill clients $140 per hour; the related hourly variable and fixed operating costs will be $75 and $18, respectively. If all employees are currently working at full capacity on other client matters, the per-hour opportunity cost of being unable to provide this new service is:
A) $0.
B) $47.
C) $65.
D) $93.
E) $140.

Question

Quizplus · Accepted Answer

The opportunity cost is the contribution margin lost from not being able to provide the new service. The contribution margin per hour is calculated as the billing rate minus the variable cost: $140 - $75 = $65.

Flavor Enterprises Has Been Approached About Providing a New Service