A supplier offers to make Part A for $35.Altec Services Corporation has relevant costs of $40 a unit to manufacture 1,000 units of Part A.If there is excess capacity,the opportunity cost of buying Part A from the supplier is ________.
A) $0
B) $40,000
C) $35,000
D) $75,000

Question

Quizplus · Accepted Answer

The opportunity cost of buying Part A from the supplier is the benefit that Altec Services Corporation would have received by using their excess capacity to produce Part A instead of buying it from the supplier. Since the relevant cost of manufacturing Part A is $40 per unit and the supplier is offering to make it for $35 per unit, Altec Services Corporation can produce Part A at a lower cost than buying it from the supplier. Therefore, the opportunity cost of buying Part A from the supplier is $0.

A Supplier Offers to Make Part a for $35