Tunley Corporation has 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

When a company has excess capacity, there is no opportunity cost because there are no lost sales or alternative uses for the resources.

Tunley Corporation Has Excess Capacity