Question 20. 20. Dominik Corporation purchased a machine 5 years ago for $527,00

Question

Question 20. 20. Dominik Corporation purchased a machine 5 years ago for $527,000 when it launched product M08Y. Unfortunately, this machine has broken down and cannot be repaired. The machine could be replaced by a new model 310 machine costing $545,000 or by a new model 240 machine costing $450,000. Management has decided to buy the model 240 machine. It has less capacity than the model 310 machine, but its capacity is sufficient to continue making product M08Y. Management also considered, but rejected, the alternative of dropping product M08Y and not replacing the old machine. If that were done, the $450,000 invested in the new machine could instead have been invested in a project that would have returned a total of $532,000. In making the decision to invest in the model 240 machine, the opportunity cost was: (Points : 3) $545,000 $450,000 $532,000 $527,000

Explanation / Answer

Opportunity cost simply refers to benefit foregon. Or it can be said, opportunity cost is benefit from the next best alternative which have to be abondoned on account of selection of given alternative

If we purchase Model 240 machine we need to forego benefit that we may drive by investing in another project that would have generated revenue of 532000

In this case opportunity cost will be therfore 532000

Related Questions

Navigate

• Browse (All)
• Browse Q
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.