Relevant cost analysis

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Student
41 Points Posted on 22 September 2014

I cant understand why the contribution lost on sales which could have been produced if the limiting factor wasnt there, is taken as an oppurtunity cost?

Eg: Possible sale quantity 1000

     Possible production qty 800

    Contribution per unit 10

   Hence oppurtunity cost = 200*10 = 2000 Rs.

Why 2000 is the opportunity cost? Please explain the logic behind it.

Thank you!

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On 22 September 2014 at 08:51 Report
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CA final CS executive (from Bangalore)
2018 Points Posted on 22 September 2014
For ex: while choosing other alternative say some contract number 1. By choosing this contract, u r loosing 2000rs profit from contract. So this 2000rs becomes an opportunity cost for contract number 1.
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On 22 September 2014 at 10:44
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CA final CS executive (from Bangalore)
2018 Points Posted on 22 September 2014
For ex: while choosing other alternative say some contract number 1. By choosing this contract, u r loosing 2000rs profit from contract number 2. So this 2000rs becomes an opportunity cost for contract number 1. i.e profit foregone from an alternative choosen.
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On 22 September 2014 at 10:46
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CA final CS executive (from Bangalore)
2018 Points Posted on 22 September 2014
Or send me the exact problem.
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On 22 September 2014 at 10:49
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CA final CS executive (from Bangalore)
2018 Points Posted on 22 September 2014
See in that problem. Whats ur possible sales demand..1000 units. But u r producing only 800 units even if u have order for 1000 units. So u r loosing ur profit to the extent of 200 units. i.e this is nothing but profit foregone .
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On 22 September 2014 at 10:53
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CA final CS executive (from Bangalore)
2018 Points Posted on 22 September 2014
Later, u would feel like " oh, i lost 200 units order and i have lost profit of Rs.2000". Now u only tel me, whats this 2000rs which u could not able to earn?? ..i.e profit foregone =opportunity cost.
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On 22 September 2014 at 10:59
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Student
41 Points Posted on 22 September 2014

Thank you for replying Kishor. Check the link i have posted below.

This link has the question. Someone else had already asked but the answer is not satisfactory.

/experts/ca-final-costing-1535119.asp#.VB-1KSuSwfM

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On 22 September 2014 at 11:07
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CA final CS executive (from Bangalore)
2018 Points Posted on 22 September 2014
OK . Ok i wil check this and above one is the proper answer. In costing, it wl be very easy to understand the concepts, if u put urself in a company place.
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On 22 September 2014 at 11:18

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