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Define relevant costs. Why are historical costs irrelevant?
Define opportunity costs
A company has an inventory of parts for a product line that has been discontinued. The parts have been bought for € 75,000. The parts can be reworked for costs of € 28,000, and then sold for € 33,000, or they can be sold as scrap for € 6,000. The company decides to choose the reworking option. What are the opportunity costs of this decision?
One-time only orders should only be accepted if
ooh Company produces three different sizes of stuffed teddy bears (large, medium and small) for discount stores like K-mart. Projected maximum sales of the three products and corresponding costs for the month of January 2015 are given below.
|
Large |
Medium |
Small |
Projected maximum sales |
3,000 |
5,000 |
4,000 |
Unit sales price |
40 |
30 |
20 |
Variable costs per unit |
|
|
|
Materials |
12 |
10 |
8 |
Labor |
8 |
5 |
3 |
Variable overheads |
5 |
3 |
2 |
Allocated fixed costs per unit |
2 |
2 |
2 |
Cost per unit |
27 |
20 |
15 |
It takes 20, 15 and 10 machine hours to manufacture 100 units of large, medium and small teddy bears, respectively. The company has a monthly machine hour capacity of 2,050 machine hours and this machine hour capacity cannot be increased for at least a year. A foreign firm has offered to buy an additional 2,000 large teddy bears at € 45 each. Which of the following items is right?
The opportunity costs of this foreign order are
The opportunity cost is
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