A company can make any one of the 2 products M or S during the year. It can exercise its option only at the beginning of each year. Relevant…
CA Intermediate · Cost and Management Accounting · PYQS · January 2026
A company can make any one of the 2 products M or S during the year. It can exercise its option only at the beginning of each year. Relevant information about the products for the next year is given below: Particulars M S Selling Price (₹ /unit) 75 45 Variable Cost (₹ /unit) 45 30 Market Demand (in units) 3,000 8,000 Production Capacity (in units) 4,000 7,000 Fixed Cost (₹) 1,20,000 You are required to compute the opportunity cost for each of the product.
Suggested Answer and Working Notes:
Computation of opportunity cost for each product Particulars M S I. Contribution per unit (₹) 30 15 (75-45) (45-30) II. Units (Lower of Production/Market Demand) 3,000 7,000 III. Possible Contribution (₹) {I x II} 90,000 1,05,000 IV. Opportunity Cost (₹) 1,05,000 90,000 (*) Opportunity cost is the maximum possible contribution forgone by not producing alternative products i.e. if product M is produced then opportunity cost will be - 1,05,000(Contribution of S).
Topics: Marginal Costing
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