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In: Accounting

SWIN Ltd manufacturers a number of specialised electronic components, including ALPHA Sensors. SWIN Ltd has the...

SWIN Ltd manufacturers a number of specialised electronic components, including ALPHA Sensors. SWIN Ltd has the capacity to produce 10,000 units of ALPHA per year. Currently it is operating at 80 per cent capacity. The selling price for ALPHA is $100 per unit. The variable cost per unit is $39. Fixed cost allocated to producing Alpha is $100,000 per year. SWIN Ltd receives a special order for 3,000 units of ALPHA. The opportunity cost associated with taking this special order is:

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Expert Solution

Working Notes: 1
CALCULATION OF THE CONTRIBUTION PER UNIT
Particulars Amount
Selling Price Per unit $                     100
Less: Variable Cost Per $                       39
Contribution Per Unit $                       61
Working Notes: 2
CALCULATION OF UNIT REDUCED FROM CURRNET PRODUCTION FOR ACCEPTING THE PROJECT
Capacity to Produce =                   10,000 Units
Capacity utilization 80%
Currently producing (10,000 Units X 80%)                     8,000 Units
Spare capacity = 20% = (10,000 Units X 20%)                     2,000 Units
Special Order received                     3,000 Units
Utilization from current production = 3000 - 2000 units =                     1,000 Units
Solution:
Calculation of Opportunity Cost assoicated with taking this special order
Utilizing from the sales of current Production                     1,000 Units
X "X" By
Contribution Margin Per unit $                       61
Opportunit Cost + (1000 Units X $ 61) $               61,000
Answer = Opportunity Cost = $ 61,000

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