Opportunity and Accounting Costs Research Assignment

Opportunity and Accounting Costs
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Opportunity and Accounting Costs
In business, the opportunity cost is an economic concept which refers the value of the forgone alternative when a given activity or transaction is chosen. This decision comes to action in tradeoff action between two or more options available. Opportunity costs are usually expressed as relative costs of other alternative terms of the best advantageous or profitable alternative. For example, a person decides to forgo a $ 50,000 pay job to attend a master's degree hence he cannot go to work while studying. The person will be unable to receive the $ 50,000 pay which is termed the opportunity costs. On a separate note, accounting costs are part of an explicit cost of a company in a given fiscal year. This is the cost of a given transaction that is recorded in the ledgers hence it appears in the financial statement of a given entity (Kurzban, et al., 2013). The essay henceforth elaborates on the difficulties experienced by business people when calculating opportunity costs compared to accounting costs.
First, the opportunity cost reveals both the measure of expenses that are incurred in addition to other related costs which are both implicit and explicit. However, these costs are not actual costs incurred or cash outflows and are absent in the books of account during the transaction. For example, when person employees a teacher in his school the opportunity cost will be the total sum of the opportunity cost of the actual school building and the salary he will pay the employee (Sponaugle, 2014).
Secondly, calculating an opportunity cost is ambiguous since it focuses on both profits foregone from the next alternative or a calculation of the existing difference between the profit from the transaction taken and the profit foregone from the next best option. This leads to opportunity cost either becoming a positive or negative and the best way is taking an action that gives negative opportunity cost (Sponaugle, 2014).
Consequently, implicit costs are a lost opportunity cost when using a resource of a given enterprise. These costs are normally intangible and are difficult to account for. For example, an enterprise owner would waste time in maintenance of an entity instead of utilizing the time in the expansion. Therefore, the best way of calculating implicit cost is deducting both explicit costs and economic profit from total revenues (Boardman & Boardman, 2008). For example, if a person gets a total revenue of $ 100,000 with explicit costs of $ 50,000 and ...