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Opportunity Cost This paper will talk about the opportunity cost The definition of the opportunity cost is an economic concept relating to income forgone because an opportunity to earn income was not pursued For example I have a choice to go to class tonight and my opportunity cost is if I dont go to class I will miss out on learning This method is not recognized by the finical accounting community however it is an important factor in utilizing companys resources Opportunity cost can be both beneficial and non-beneficial for a company to consider The opportunity cost method is preferable if the purpose is to compensate for a loss If presenting to the higher-ups this method would be preferable if it can be shown that the loss was not as bad as it could have been Showing the upper management that the alternative could have been worse Opportunity cost being the value associated with the road not taken this central concept of managerial decision theory has soft hypothetical and subjective foundations Its measurement presents practical difficulties Decision makers subjective estimates of opportunity costs are used as inputs into models of decision making under uncertainty Or the absence of objective measures of opportunity costs further exacerbates the agency costs In either case a reduction in the subjectivity of opportunity costs holds the promise of helping make better decisions The down other side is where it is a bad place to use opportunity cost is shown from Covering Up Trading Losses Opportunity-Cost Accounting as an Internal Control Mechanism Where the analysis clarifies how and why some firms top managers and home-country regulators deserve blame for allowing cumulative losses to become so large The central point is that information systems that focus exclusively on cash flows tempt amoral traders to build credits that generate a high level of accounting profits Constructing opportunity-cost
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