Cost Accounting - Help!!!?

1.Define Opportunity Cost & give abd relevant example.
2. Distinguish between variable cost & fixed cost in terms of total output & per unit.
3. Idenfity irrelevant costs & cite examples of costs that are irrlevant.



Thanks!!!!

Opportunity cost is the cost of forgoing the alternative. Or the next best thing.

1) To Invest in POSB bank that gives you an interest rate of say 2.5% means that you would forgo the amount of investing in a stock market making a return of say 8%.

so your Opportunity cost of the same investment is not the capital sum of say S$10000 but the interest differences between 8% and 2.5%

2) Variable cost are cost that are fixed in a short run. It moves with the volume of sales or production. Fixed cost are cost that are fixed over a fixed period.

The material cost used in a production environment would be variable and it would cost say S$0.30 per unit of widget. Wherelse the cost of fixed cost would be the plant and machinery that your company invest. The cost of depreciating the equipment over the period of the useful life is therefore fixed under the straight line basis.

3) Relevant cost are cost that are relevant towards a decision making process. eg. The petrol cost incurred in driving to KL would be relevant cost as compared to the airfare. However, the cost of car is Irrelevant cost as you would have already owed the car and there would be no decision differences.