What is Opportunity Costing
Opportunity cost is the value of benefit sacrificed. In opportunity costing system the cost are charged on the bases of benefit sacrificed and not on the bases of cost actually incurred. The opportunity costing has a great use in decision making.
When Opportunity Cost is Zero
There are two situation where the opportunity cost will be treated as zero.
1. There is no alternative use of resources.
2. There is no scarcity of resources and therefor there is no question of sacrificing.
What are limitation of Opportunity Costing
1. Not Easy Establish Alternative use
It is not easy to determine the alternative use of resources in many cases.
2. Valuation of Alternate use
The valuation of alternate use of resources is also a very challenging task.
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