Question 1. A company has an opportunity to obtain a contract for the production of a special component. This...

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Question 1. A company has an opportunity to obtain a contract for the production of a special component. This component will require 100 hours of processing on machine X. Machine X is working at full capacity on the production of Product A; and the only way in which the contract can be fulfilled is reducing the output of Product A. This will mean a loss of revenue of $200. The contract will result in additional variable cost of $1,000. Required: 1. What is the opportunity cost associated with the decisions 2. Should the company accept the special order for the component? Give rationale for accepting or rejecting the special order. 3. If company accepts the contract, what should be the cost of special component? 4. What should be the price of special component if company desires a profit of 20% based (20 Marka) upon selling price?

Answer rating: 100% (QA)

1 What is the opportunity cost associated with the decision The opportunity cost is the cost of forgoing the next best alternative when making a decis View the full answer