Macon Corporation has no excess capacity. If the firm desires to implement the general transfer-pricing rule, opportunity cost would be equal to:
A) zero.
B) the direct expenses incurred in producing the goods.
C) the total difference in the cost of production between two divisions.
D) the contribution margin forgone from the lost external sale.
E) the summation of variable cost plus fixed cost.

Question

Quizplus · Accepted Answer

The correct answer is D) the contribution margin forgone from the lost external sale. When a corporation like Macon has no excess capacity, the opportunity cost of internal transfers is the contribution margin that would have been earned on sales to external customers. This is because producing goods for internal use means the company cannot sell those goods externally, thus forgoing the potential contribution margin from those sales.

Macon Corporation Has No Excess Capacity