Pamela in Pamplona makes bull-repellent scent according to a traditional Spanish recipe, which normally sells at €9 (Euros) per unit. Normal production volume is 10,000 ounces per month, and the maximum capacity is 10,800 ounces per month. Average cost is €5 per ounce, of which €2 is direct material and €1 is variable conversion cost (direct labor + variable conversion cost). This product is seasonal. After July, demand for this product drops to 6,000 ounces monthly. In July, Umberto offers to buy 1,800 ounces for €8,100. If Pamela accepts the order, she must design a special label for Umberto at a cost of €800. Each label will cost 30 cents to make and apply.If Pamela accepts the order, she will turn away regular customers who order 800 ounces. Which of the following statements is corect? A. The opportunity cost of accepting the offer is €1.360 В. The opportunity cost of rejecting the offer is €4,800 C. The opportunity cost of accepting the offer is €7,500 • D. The opportunity cost of rejecting the offer is €1,375

Pamela in Pamplona makes bull-repellent scent according to a traditional Spanish recipe, which normally sells at €9 (Euros) per unit. Normal production volume is 10,000 ounces per month, and the maximum capacity is 10,800 ounces per month. Average cost is €5 per ounce, of which €2 is direct material and €1 is variable conversion cost (direct labor + variable conversion cost). This product is seasonal. After July, demand for this product drops to 6,000 ounces monthly. In July, Umberto offers to buy 1,800 ounces for €8,100. If Pamela accepts the order, she must design a special label for Umberto at a cost of €800. Each label will cost 30 cents to make and apply.If Pamela accepts the order, she will turn away regular customers who order 800 ounces. Which of the following statements is corect? A. The opportunity cost of accepting the offer is €1.360 В. The opportunity cost of rejecting the offer is €4,800 C. The opportunity cost of accepting the offer is €7,500 • D. The opportunity cost of rejecting the offer is €1,375

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Pamela in Pamplona makes bull-repellent scent according to a traditional Spanish recipe, which normally
sells at €9 (Euros) per unit. Normal production volume is 10,000 ounces per month, and the maximum
capacity is 10,800 ounces per month. Average cost is €5 per ounce, of which €2 is direct material and €1 is
variable conversion cost (direct labor + variable conversion cost). This product is seasonal. After July,
demand for this product drops to 6,000 ounces monthly.
In July, Umberto offers to buy 1,800 ounces for €8,100. If Pamela accepts the order, she must design a
special label for Umberto at a cost of €800. Each label will cost 30 cents to make and apply.lf Pamela
accepts the order, she will turn away regular customers who order 800 ounces.
Which of the following statements is correct?
A.
The opportunity cost of accepting the offer is €1.360
В.
The opportunity cost of rejecting the offer is €4,800
C.
The opportunity cost of accepting the offer is €7,500
• D.
The opportunity cost of rejecting the offer is €1,375

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