You are watching: The opportunity cost of making a component part in a factory with no excess capacity is the
As we know that
Opportunity price is the net advantage aincrease from the loss experienced from the preferred alternative.
In the given case, it is discussed that tright here is no different use for the excess capacity for the manufacturing facility and therefore no get or profit foregone.
In enhancement, the Fixed Manufacturing expense stays solved whether production boosted or not . Only incremental or avoidable addressed costs will certainly be pertinent for decision making.
While on the various other hand also , the variable costs are costs which increases or decreases depend on increase or decrease in manufacturing volume.
If tright here is an excess capacity made use of for making extra components so it will certainly rise in proportion to boost in production volume and vice versa.
And, the Total Manufacturing price is the combicountry of full variable expense and also resolved prices, therefore is not an possibility cost as stated above
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Marquis Company approximates that annual manufacturing overhead costs will certainly be $900,000. Estimated annual operating task bases a
Labour hour $18 per direct labour
Machine hour $9 per machine hour
Budgeted labour price 180% of labour cost
Prefigured out overhead absorption rate=
Estimated Overhead for the period/Estimated task level
Labour hour basis
Estimated Overhead for the period/Estimated labour hours
=$18 per straight labour
Machine hour basis
Estimated Overhead for the period/Estimated machine hours
Overhead price per machine hour = $900,000/100,000 hours
=$9 per machine hour
Direct labour expense basis
Pre-figured out overhead rate = Estimated Overhead for the period/Estimated labour price
=180% of labour cost
Labour hour =$18 per straight labour
Machine hour =$9 per machine hour
Budgeted labour cost 180% of labour cost
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