Question
With regards to the below questions, I was wondering why you included the cost of direct materials in the opportunity cost calculation Problem 6-3 Binder
With regards to the below questions, I was wondering why you included the cost of direct materials in the opportunity cost calculation
Problem 6-3
Binder Manufacturing pro- duces small electric motors used by appliance manufacturers. In the past year, the company has experienced severe excess capacity due to competition from a foreign company that has entered Binder's market. The company is currently bidding on a potential order from Dacon Appliances for 6,000 Model 350 motors. The estimated cost of each motor is $45, as follows:
a.With respect to overhead, what is the opportunity cost of producing a Model 350 motor?
Direct Material= $25
Direct Labor= $5
Manufacturing Overhead (variable)= (6,000,000/ 5,000,000)= 1.2 x 5 (Direct Labor)=$6
Opportunity Cost= 25 + 5 + 6= $36
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