Question

Longview Baskets has in its inventory 2100 damaged baskets that cost $22,000 The baskets can be sold in their present condition for $13,000, or repaired at a cost of $15,000 and sold for $37,000. What is the opportunity cost of selling the baskets in their present condition

Answer 1

Answer:

Longview Baskets has in its inventory 2100 damaged baskets that cost $22,000 The baskets can be sold in their present condition for $13,000, or repaired at a cost of $15,000 and sold for $37,000. The opportunity cost of selling the baskets in their present condition = $18,000.

Explanation:

Opportunity cost means the value of the next-highest-valued alternative use of that resource. If, for example, you spend time and money to see a movie, you cannot spend that time at home reading a book, and you can't spend the money on something else.

Opportunity cost to sell in current condition = Selling price after repair - Cost to repair = $36,000 - $18,000 = $18,000

Answer 2

Answer:

The opportunity cost of selling the baskets in their present condition is the $22,000 potential benefit from repairing before selling the baskets that will be lost or not be received.

Explanation:

Opportunity cost refers to the potential gain, benefit, or profit that is lost one alternative when another alternative is chosen. Opportunity cost is the benefit an alternative option that is not received when one does not chose that alternative but chose another alternative.  

From the question, the potential benefits of the two options can be determined as follows:

Potential benefit of selling in present condition = $13,000

Potential benefit of repair before selling = Selling amount after repair - Repair cost

                                                                    = $37,000 - $15,000

Potential benefit of repair before selling = $22,000

Therefore, the opportunity cost of selling the baskets in their present condition is the $22,000 potential benefit from repairing before selling the baskets  that will be lost or not be received.