Question

Starts Feb 8, 2020 11:59 PM Opportunity costs are the potential benefits a person or company forgoes when choosing one alternative over others. Both business decisions and personal decisions can have opportunity costs. While opportunity costs are measured in terms of monetary impact for cost accounting purposes, in reality, most important decisions have both quantitative and qualitative components.

Answer 1

Opportunity Costs are the cost or loss that we bear knowingly or unknowingly even we have affordability to bear it.

If simply said, opportunity cost is losing the profit when we select one normal alternative over other useful alternative. It is the concept useful to understand and chose the available best and reasonable alternatives in the given scope.

Opportunity means a chance to get through. Not only in business but also in human's life, if we execute them properly we will be benefit more if not we need to lose something either in the form of money or in time or life. In business parlance, this loss would be considered as Cost whereas in personal life it's a loss.

In financial accounting, all the expenses are recorded post the transaction, hence assessing the opportunity cost is useless since loss is a loss. Whereas cost accounting is about the examination or assessment of alternatives available and choosing the best alternative. So the understanding the concept of opportunity cost is vital for cost accounting person. Commercially, it is applied and measured in quantitative or monetary since the business is money based. However, in other cases, it is also helpful to measure in qualitative basis, such as the decisions taken during natural calamities to save the human lives or to save their assets.