Opportunity Cost

[munna99185]

Opportunity cost is the cost of next best alternative forgone in a situation in which a choice needs to be made between several mutually exclusive alternatives. Assuming the best choice is made, it is the "cost" incurred by not enjoying the benefit that would be had by taking the second best choice available. For example, an individual may decide to use a period of vacation time for travel rather than to pass time at home with family. The opportunity cost of the trip could be said to be the forgone passing time at home. Since every resource (land, money, time, etc.) can be put to alternative uses, every action, choice, or decision has an associated opportunity cost. Opportunity costs are fundamental costs in economics, and are used in computing cost benefit analysis of a project. Such costs, however, are not recorded in the account books but are recognized in decision making by computing the cash outlays and their resulting profit or loss. [Wikipedia and other sources]


Sayed Farrukh Ahmed
Assistant Professor
Faculty of Business & Economics
Daffodil International University

[sajib]

A benefit, profit, or value of something that must be given up to acquire or achieve something else. Since every resource (land, money, time, etc.) can be put to alternative uses, every action, choice, or decision has an associated opportunity cost.

Opportunity costs are fundamental costs in economics, and are used in computing cost benefit analysis of a project. Such costs, however, are not recorded in the account books but are recognized in decision making by computing the cash outlays and their resulting profit or loss.[businessdictionary.com]

[sayma]

good post..

[tanzina_diu]

Cash flows that could be realized from the best alternative use of an owned asset. It should be included as cash out flows in a project’s incremental cash flows.