Relevant cost analysis

Anshu (Student) (71 Points)

22 September 2014  

I cant understand why the contribution lost on sales which could have been produced if the limiting factor wasnt there, is taken as an oppurtunity cost?

Eg: Possible sale quantity 1000

     Possible production qty 800

    Contribution per unit 10

   Hence oppurtunity cost = 200*10 = 2000 Rs.

Why 2000 is the opportunity cost? Please explain the logic behind it.

Thank you!