QUESTION 23 An opportunity cost is the potential benefit tha

QUESTION 23 An opportunity cost is the potential benefit that is lost by taking a specific action when two or mo a True @ False QUESTION 24 Aitken Corp currently makes 20.000 subcomponents a year in one of its factories. The unit costs to produce are Direct materials Direct labor Variable Fixed manufacturing overhead Per unit $15 10 15 10 $55 ing overhead An outside supplier has offered to provide Aitken Corp with the 20,000 subcom ponents at a $45 per unit price. If Aitken Corp accepts the outside offer, what will be the effect on short-term profits? $200,000 decrease O $400,000 increase $200,000 increase O $100,000 decrease

Solution

23) Yes, An opportunity cost is the potential benefits that is lost by taking a specific action when two or more alternative Choices are available.

So answer is True

24) Relevant unit cost of manufacture = 15+10+15 = 40

Relevant unit cost of buy = 45

Effect on short term profit = (40-45)*20000 = -100000

So answer is d) $100000 Decrease