Thompson Company currently produces 10,000 units of a key part at a total cost of $512,000 annually.Annual variable costs are $300,000.Of the annual fixed costs,$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 $60,000 annually.Alternatively,the facilities could be rented out at $70,000 annually.If Thompson Company makes the part,what is the annual opportunity cost of the facilities?
A) $13,000
B) $28,000
C) $60,000
D) $70,000

Question

Quizplus · Accepted Answer

The annual opportunity cost of the facilities is the best alternative forgone by using them to manufacture the part, which is $70,000, the amount they could earn by renting out the facilities.

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