Opportunity cost

Examples of Opportunity cost in the following topics:

• Competitive Advantage

  • Opportunity cost - The opportunity cost of cloth production is defined as the amount of wine for example, that must be given up in order to produce one more unit of cloth.
  • A country is said to have a comparative advantage in the production of a good (say cloth) if it can produce cloth at a lower opportunity cost than another country.
  • The opportunity cost of cloth production is defined as the amount of wine that must be given up in order to produce one more unit of cloth.
  • The 640GB drive has a competitive advantage over the 500GB drive in terms of both cost and value.

• Managerial Accounting

  • This can create opportunity costs, as interdependent resources are being restrained.
  • Some simpler examples of common managerial accounting tasks include developing business metrics, cost-benefit analyses, IT cost transparency, life cycle cost analysis, strategic management advice, sales forecasting, geographically segmented reporting, and rate and volume analysis.
  • Managerial accounting is inherently flexible, and drives towards maximizing internal efficiency through careful consideration of opportunity costs and various customized metrics.

• The Imperative of Liquidity

  • Organizations must carefully manage their cash flow statements to ensure appropriate liquidity to avoid missing investment opportunities.
  • When an organization has an opportunity to fund, or a debt to pay, they need capital on hand (i.e. capital available now) to provide funding.
  • Company C will capture the opportunity, as the capital they are using is more liquid.
  • Conversely, having cash sitting without investment also incurs an opportunity cost.
  • Consider the concept of liquidity as it pertains to an organization's available cash flow and overall ability to capture opportunities in the market

• Skills for building positive relationships

  • Active facilitation brings objectivity to group processes and results in shared understandings of potential opportunities and the costs of pursuing those opportunities.

• Break-Even Analysis

  • For instance, reducing fixed costs (finding a building with cheaper rent), reducing variable costs (finding a cheaper supplier for table-making goods), and/or increasing the price of their tables.
  • In Business Economics, specifically cost accounting, the break-even point (BEP) is the point at which cost (or expenses) and revenue are equal—there is no net loss or gain, i.e., one can "break even. " No profit is achieved nor loss incurred, although opportunity costs are reconciled, and capital receives the risk-adjusted, expected return.
  • Try reducing their fixed costs (e.g., by renegotiating rent, or by better controlling utility telephone bills or other costs)
  • To do this, draw the total cost curve (TC in the diagram), showing total cost associated with each possible level of output; the fixed cost curve (FC), showing costs that do not vary with output level; and finally, the various total revenue lines (R1, R2, and R3), showing the total amount of revenue received at each output level given the chosen price point.
  • This graphs depicts an example of a break-even point based on sales and total costs.

• Outsourcing

  • Companies outsource to avoid certain types of costs.
  • With reduced short run costs, executive management sees the opportunity for short run profits while the income growth of the consumers base is strained.
  • This motivates companies to outsource for lower labor costs.
  • However, the company may or may not incur unexpected costs to train these overseas workers.
  • Lower regulatory costs are an addition to companies saving money when outsourcing.

• Scheduling

  • The purpose of scheduling is to minimize production time and costs.
  • In order to reduce costs, an airline may want to minimize the number of airport gates required for its aircraft.
  • Production scheduling aims to maximize the efficiency of an operation and reduce its costs .
  • Further, pattern recognition software reveals scheduling opportunities that might not be apparent without this view into the data.
  • For example, in order to reduce costs, an airline may want to minimize the number of airport gates required for its aircraft.

• The sun rise of your new business and accessing market opportunity: the initial rim of the wheel

  • What will it cost to make a sale to this customer?
  • If there is a common pitfall for entrepreneur, it's greatly underestimating the cost to acquire and repeatedly sell to a customer.
  • Is my timing right for this market opportunity?
  • It costs you more than you make to sell your product or service.
  • To help you decide when to move forward with and when to forego an opportunity, please see the "Stop and Go Signs for Assessing Market Opportunity Matrix."

• The State of Technology

  • The constant evolution of technology offers both considerable opportunity and risk to businesses across all industries.
  • Technology is always changing, offering new opportunities and risks for business every single day.
  • This type of technological opportunity is often referred to as a disruptive innovation.
  • On the manufacturing floor, smarter machines can reduce production time, increase efficiency, and lower costs.
  • Identifying technologies that could cut costs, improve productivity, capture new markets, or fulfill new needs for consumers is a constant focal point for technology specialists.

• Working from Home or Online

  • Start-up costs for new franchisees are in the range of $130,000 - $180,000.
  • However, #2 on the list is Stratus Building Solutions, a cleaning company, with start-up costs of just $3,000 - $58,000.
  • Thus, even among home based franchises, start up costs can vary greatly.
  • In some cases, this franchise fee is actually dwarfed in size by the cost of the volume needed for the business area.
  • Thorough and honest assessment should guide which opportunities you consider, and you should explore your weaknesses as well.