Hamilton has no excess capacity. If the company wishes to implement the general transfer-pricing rule, the 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 foregone from the lost external sale.

Question

Quizplus · Accepted Answer

Since Hamilton has no excess capacity, if one division sells its goods to another division, it would result in a lost external sale. Therefore, the opportunity cost would be the contribution foregone from that lost sale.

Hamilton Has No Excess Capacity