Question

Paris Company has the capacity to produce one product. Product A has a contribution margin of $10. Product B has a contribution margin of $8. Product C has a contribution margin of $6. If Paris Company decides to produce Product B what is the opportunity cost?

$6

$8

$10

$15

Answer 1

Opportunity cost is the benefit foregone in order to proceed with some other option

As we can find from the given data, maximum contribution is of product A ( $10 ) and second highest contribution is of product B ( $8 ) and last is product C ( $6 )

Since there is no benefit in producing product C which has a lower contribution margin than product B and there is loss in not producing product A which has higher contribution margin than product B, the opportunity cost is the benefit foregone by not producing product A , that is, $10

So, as per above discussion, option C is the correct option