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Tramont’s opportunity cost

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Tramont’s opportunity cost

  • This topic has 1 reply, 2 voices, and was last updated 1 year ago by John Moffat.
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  • October 17, 2021 at 3:47 pm #637893
    Kira0896
    Member
    • Topics: 5
    • Replies: 1
    • ☆

    Good evening, Sir.

    The question states the component sold makes a unit cost of $20. Next year production and sales estimated at 40k units fall by 20% each year for following 3 years.

    Could you kindly explain why is it deemed as opportunity cost?

    Is it due to the decline of number of units?

    I would appreciate if you are willing to allocate your time on answering this as I am not good in opportunity cost.

    Thanks and Regards.

    October 18, 2021 at 7:18 am #638125
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 51583
    • ☆☆☆☆☆

    An opportunity cost is lost income as a result of doing the new investment.

    In this question, if they do move the production to Gamala then they will lose income that they would have been making if they had continued production of the X-IT in the USA.

    This lost income is therefore an extra cost of moving the production to Gamala.

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