Marjorie Company has an idle machine that originally cost $200,000.The book value of the machine is $100,000.The company is considering three alternative uses of the idle machine:
Alternative 1: Disposal of machine.Disposal value of machine is $50,000.
Alternative 2: Use the idle machine to increase production of Product A.Contribution margin from additional sales of Product A is estimated to be $60,000.
Alternative 3: Use the idle machine to increase production of Product B.Contribution margin from additional sales of Product B is estimated to be $70,000.
When considering Alternative 3,what is the opportunity cost of the idle machine?
A) $50,000
B) $60,000
C) $70,000
D) $110,000

Question

Quizplus · Accepted Answer

The opportunity cost of choosing Alternative 3 is the next best alternative forgone, which is the contribution margin from additional sales of Product A ($60,000) under Alternative 2.

Marjorie Company Has an Idle Machine That Originally Cost $200,000