Relevant Costs 2

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Question Description
Discussion Topic 1: Relevant Costs

What is a relevant cost?
What is meant by “opportunity cost”?
Provide a scenario illustrating analysis of relevant cost and opportunity cost in a make or buy scenario.

Just do response each posted # 1 to 3 only
Posted 1
A relevant cost is refers to the incremental and avoidable cost ofimplementing a business decision. These cost are cost that are relatedto a change of cash flows. A opportunity cost is the potential loss whenmaking a decision between alternatives when producing a product orperforming a service. A make or buy scenario that would be for a companythat produces piston rings were there is the option to buy them at onedollar a piece or produce them themselves that includes the relevantcost of labor and parts to produce the piston rings. The opportunitycost would be to make the piston rings them self or purchase fromsupplier.
Posted 2

When comparing costs to determine if we should accept a project ororder, we must first analyze the cost comparison to see if we willbenefit from taking the order. A cost that is different between thescenarios are considered a relevant cost because those costs are goingto factor into the end decision (Weygandt, Kimmel, & Kieso, 2018).An example of a relevant cost is the difference in the amount of directmaterial costs between two products that you must decide which one toproduce.
An opportunity cost is a cost that we lose to gain another cost. Inthe last unit, we talked about sales ratios, and which products weshould choose to produce which will give us the most income when we havelimited resources. If we had a company and had to choose to producebetween item a and item b, and then choose item a, the revenue lost fromitem b is the opportunity cost.

A scenario that I can use is from a laser engraving business. If Iwanted to make identification tags for emergency services, I can do oneof two things. I can buy the sheet of plastic and have the laser cutout each tag and engrave them, or I can buy the tags pre-cut and thenlaser engrave the responder’s information on each tag. The differencein material costs is a relevant cost, as it will help determine mydecision. For the opportunity cost, if by using a plain sheet and doingthe cutting and engraving, my profit per tag is $2.00 dollars, and if Ibuy the tags and just engrave them for a profit per tag of $1.50, I amgoing to go with option a and buy the sheets to maximize my profit. Theopportunity cost is the $1.50 I will lose with each tag by not goingwith option b, in order to make an extra $.50 cents per tag by usingoption a.

Posted 3

Relevant cost is a managerial accounting term that describesavoidable costs that are incurred only when making specific businessdecisions.

Opportunity costs represent the benefits an individual, investor orbusiness misses out on when choosing one alternative over another.

In regards to this week’s DB, I would say that a great example of anopportunity cost would be buy a computer versus build a computer. Thisone I use because I have personally been struggling with this the pastcouple of years. I could easily buy a pre-built computer but I lose onthe opportunity of having current parts and/or having to upgrade.Another viewpoint on it is that if I were to buy a pre-built computer Icould enjoy games now but the opportunity cost where I could save up tobuild a better PC has me not capable of playing some of the newer gameswhen they come out for the new gen next year. I am aware it isn’t amanagement point of view but the same application is there. I could buythe parts and make a PC or i could just buy a PC. Granted I am notmaking any parts it seems like but I could indeed create a case or buyone. is it cheaper for me to use a 3d printer, buy materials, or buy thecase. The relevant cost I believe I wrapped in with the opportunity. Ifi were supposed to give a number problem please respond and will adjustaccordingly.

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