I am stuck and cannot figure out the end.. how do I get the opportunity cost? Th

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I am stuck and cannot figure out the end.. how do I get the opportunity cost?

Thank you for the help!

Question 7 Wilma Company must decide whether to make or buy some of its components. The costs of producing 62,600 switches for its generators are as follows Direct materias $30,200 Variable overhead $44,900 Direct labor $31,844 Fixed overhead 77,200 $2.94 $184 044 62,600 the company has an opportunity to buy the switches at $2.73 per unit If the company purchases the switches, all the variable costs and one-fourth of the fixed costs will be Instead of making the switches at an average cost o ellminated Prepare an incremental analysis showing whether the company should buy the switches. (Enter negative amounts using either a negative sign preceding the number e.g -45 or parentheses e.g. (45).) Net Income Increase (Decrease) Make Buy Direct materials Direct labor Variable manufacturing costs Fixed manufacturing costs Purchase price Total cost 30,200 s 1,844 44,800 77,200 30,2 1,844 57900 170898 228798 1930 170898 44754 84044S Wilma Cormpany will incur $ 44754 of additional costs ifi buys the switches. Would your answer be different if the released productive capacity will generate additional income of $49,014 (Enter negative amounts using either a negative sign preceding the number e.g.-45 or parentheses e.g. (45)) Net Income Increase (Decrease) Make Buy Total Cost Opportunity cost Total cost 044 s 228798s , the answer s. The analysis shows that net income will be Question Attempts: 0 of 3 used SAVE FOR LATER SUBHIT ANSWER

Explanation / Answer

As per the question asked , the answer to 2nd part related to opportunity cost has been provided below .

Opportunity Cost is the cost of the next best alternative or the benefit forgonewhen one alternative is chosen over the another .

In the given case , of we choose the make option , we will not be able to earn the addtional income of $49014 from released capacity . However if the Buy option is choosed , additional income of $49014 would be generated from the released capacity .So therefore the opportunity cost is $ 49014 if we choose the make option over buy option .

Hence if the above case , Buy option will be choosed as it will result in additional net income of $ 4260

Particulars Make Buy Net Increase (Decrease) Total Cost 184044 228798 -44754 Opportunity Cost 49014 49014 Total Cost 233058 228798 4260

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