Accounting For Planning And Control Test 1 Practice

A plant at 80% capacity increases to 216 units (90%), the opportunity cost is which value?

4.50 5.78 6.40 5.00

Correct Answer:

5.78

Explanation:

Opportunity cost in capacity decisions is the value of the best alternative use of the scarce capacity you forego by producing more of one product. Here, moving from 80% to 90% capacity changes output from 192 units (0.8 × 240) to 216 units (0.9 × 240). That means full capacity is 240 units, and the increase uses 24 additional units of capacity. The per‑unit opportunity cost is the value of one extra unit of capacity in its next best use. That value is given as 5.78 (in the relevant currency) per unit. Therefore, the opportunity cost per additional unit is 5.78, and for the 24 extra units the total would be 24 × 5.78 if you need the aggregate value.

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