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Morpet Ltd manufacturers a number of specialised electronic components, including the advanced X1000. Morpet Ltd has...

Morpet Ltd manufacturers a number of specialised electronic components, including the advanced X1000. Morpet Ltd has the capacity to produce 10 000 units of X1000 per year. Currently it is operating at 85 per cent capacity. The selling price for X1000 is $100 per unit. The variable cost per unit is $25. Fixed cost allocated to producing X1000 is $350 000 per year. Morpetn Ltd receives a special order for 2000 units of X1000.

The opportunity cost associated with taking this special order is:

Select one:

a. $37500

b. $3875000

c. $250000

d. $375000

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Answer #1
Correct Option a. $37,500
Opportunity cost will be the contribution lost on normal sales
Maimum capacity          10,000
Current Capaicty            8,500
Free capacity            1,500
Less: special order unit            2,000
Loss of normal sales unit                500
Multiplied by contribution margin per unit                  75 (100-25)
Loss of contribution          37,500 (500*75)
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