Altec Company has relevant costs of $40 per unit to manufacture 1,000 units of Part A. A current supplier offers to make Part A for $35 per unit. If capacity is constrained, the opportunity cost of buying Part A from the supplier is:

 

$5,000 Opportunity cost of buying Part A from a Supplier

Step-by-step explanation

The Formula of Opportunity Cost is simple, Just get the Difference of the Forgone Option and The Chosen Option.

In this Question your Forgone Option is your relevant cost and your chosen option is the cost if you buy to a supplier

Compute the total cost of the 2 option

Forgone Option = Unit cost X Number of Units

=$40 X 1000 Units

=$40,000

Chosen Option= $35 X 1000 Units

=$35,000

Opportunity Cost = $40,000 - $35,000

=$5,000 Opportunity Cost