Opportunity cost is the amount of lost profit that can arise as a result of choosing an alternative way to use resources and abandoning other opportunities. The calculation of opportunity costs allows the head of the enterprise to make the most profitable decisions and plan the activities of the organization.
Instructions
Step 1
Make a planned cost estimate of the total cost of one manufactured item, work or service. Calculate the profit or loss of the enterprise when releasing a batch of products. Even if the analysis showed that this work will bring only a loss to the enterprise, there is no need to rush to refuse to perform it. First, calculate the opportunity cost, taking into account additional inputs that affect production.
Step 2
Calculate material costs. Analyze the materials available at the enterprise that you planned to use to get the job done. Their cost would not be affected in any way by the decision to accept the order; therefore, it is not necessary to take into account the actual costs of purchasing materials that are already in stock. Calculate the cost of acquiring a similar amount of materials, the resulting value will be associated with an internal reallocation of resources, therefore, refers to internal opportunity costs.
Step 3
Analyze the expense of wages. External opportunity costs include the cost of remuneration of workers, which are attracted from outside to produce this product, and internal - the amount of income that the company loses, distracting employees from their previous affairs to perform new work. Calculate sales and production overheads that result from order fulfillment.
Step 4
Determine the total value of the opportunity costs of the enterprise. Calculate the cost of selling your products. Analyze the obtained values, which will show whether it is profitable for the company to agree to the fulfillment of this order. The calculation of opportunity costs helps in planning the activities of an enterprise, as it shows the rationality of using the organization's financial resources to carry out a particular activity.
