Opportunity costs for insourcing include the contribution margin foregone from using the capacity for a new product.

Question

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Opportunity cost refers to the benefits or income a business misses out on when choosing one alternative over another. In the context of insourcing, if a company uses its capacity to produce an item in-house rather than for a potentially more profitable new product, the contribution margin (profit) that could have been earned from the new product represents an opportunity cost.

Opportunity Costs for Insourcing Include the Contribution Margin Foregone from Using