Opportunity cost

access_time 2019-01-31T05:01:16.974Z face CA N Raja COST ACCOUNTING

 

Let’s say your company has got 10 million Bank deposit and it is earning interest from the deposit.Now company has taken a decision to finance that expansion project by withdrawing money from bank deposit .When company implements this decision it is going to lose that interest on the Bank deposit. So that loss of interest will be considered as opportunity cost for carrying out the expansion plan.Opportunity cost refers to the value of sacrifice made or benefit of opportunities for gone (in this case loss of interest) in accepting an alternative course of action (i.e., expansion project).

 

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