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How to find the opportunity cost

How to find the opportunity cost

Opportunity cost is the value of lost profits, which may occur as a result of the choice of an alternative method of use of resources and the rejection of other options.

Calculation of the costs of alternative allows the head of the company to make the most profitable decisions and plan for the organization.

instructions

1

Make a calculation of the total plannedcost of manufactured goods, works or services. Calculate the profits or losses of the enterprise with the release of a consignment of goods. Even if the analysis showed that this work will bring to the enterprise only loss, you should not rush to abandon its execution. To start with, calculate the opportunity costs, given the additional source data, affecting production.

2

Calculate material costs. Examine available materials companies that planned to use for the job. Their cost will not be affected by a decision on acceptance of the order, therefore no need to take into account the actual costs for the purchase of materials that are already in stock. Calculate the cost of acquiring the same amount of material, the resulting value will be associated with an internal reallocation of resources, therefore it refers to an internal opportunity costs.

3

Analyze the expense of wages. The external alternative costs include labor costs of employees who are involved on the part of the production of these products, and to internal - the amount of revenue that the company loses, diverting employees from the former Minister on the implementation of a new job. Count the commercial costs and production overheads that are formed as a result of the order.

4

Determine the total amount of alternativecosts of the enterprise. Calculate the cost of implementation of these products. Analyse the values ​​which will determine whether the enterprise is beneficial to agree on the implementation of this order. opportunity cost calculation helps in the planning of the company, as it shows the rationality of the use of financial resources of the organization to perform a particular activity.

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