Opportunity Cost: Lost Rental Income (Opportunity Cost)
Benson Company is a farm equipment manufacturer that currently produces 20,000 units of gas filters annually for use in its lawn mower production. The expected annual production cost of the gas filters is summarized as follows:
Tompkins Company has offered to sell Benson 20,000 units of gas filters for $17.00 per unit. If Benson accepts the offer, some of the manufacturing facilities currently used to manufacture the filters could be rented to a third party at an annual rent of $35,000.Should Benson accept Tompkins’s offer, and why?