When a decision is made in an organization, it is selected from a group of alternative courses of...

Question:

When a decision is made in an organization, it is selected from a group of alternative courses of action (i.e., decision alternatives). The loss associated with not choosing a given decision alternative is referred to as a(n):

(a) Sunk cost.

(b) Discretionary.

(c) Opportunity cost.

(d) Committed cost.

(e) Outlay cost.

Opportunity Costs:

Opportunity costs refer to the value forgone when a certain decision is made sacrificing the potential revenue or income to be earned from another activity.

Answer and Explanation:

The answer is (c) Opportunity cost.

  • Sunk costs are costs already incurred therefore not considered during the decision process.
  • Discretionary costs are costs that can be eliminated without a significant impact on the short-term.
  • Committed costs are costs that are already locked in for the next periods, these costs cannot be avoided since the business is already obliged to spend for such costs.
  • Outlay costs are costs incurred upon undertaking a certain activity.

Learn more about this topic:

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How to Calculate Opportunity Cost

from Economics 102: Macroeconomics

Chapter 1 / Lesson 3
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