A. The opportunity cost is the lost benefit for not manufacturing another product. Lost benefit is calculated by subtracting the additional cost of purchasing the product from the potential contribution of manufacturing another product: ($52,000 - $48,000).
B. The variable cost per unit to manufacture Part Number KJ37 is: Direct Materials: $1,000Material Handling (20% of direct materials, or $1,000 × .20): $200Direct Labor: $8,000Variable OH (1/3 of $12,000): $4,000Total: $13,200The variable cost per unit to purchase Part Number KJ37 is:Part KJ37, which has now become direct materials: $15,000Material Handling (20% of direct materials, or $15,000 × .20): $3,000Total: $18,000The difference is $18,000 - $13,200, or $4,800 per unit. If 10 units of Part Number KJ37 are needed each month, then the total increase in variable expense related to purchasing KJ37 outside will be $4,800 × 10, or $48,000.The opportunity cost is the lost benefit for not manufacturing another product. Lost benefit is calculated by subtracting the additional cost of purchasing the product from the potential contribution of manufacturing another product. If Leland has the opportunity to produce another product that would contribute $52,000 per month, then the opportunity cost for continuing to manufacture KJ37 would be $4,000, calculated as follows: ($52,000 - $48,000).
C. The opportunity cost is the lost benefit for not manufacturing another product. Lost benefit is calculated by subtracting the additional cost of purchasing the product from the potential contribution of manufacturing another product: ($52,000 - $48,000).
D. The correct answer is one of the answer choices given.
