Economic Decision Making Using Cost Data

Chapter 5

How Accountants Measure Opportunity

The chapters up to this point provide great detail about the decision making process. In particular, we have thus far discussed the theory behind opportunity costs, relevant revenues and costs, demand, and production costs. Up to this point, however, we have only dealt with economic theory. Theoretically speaking, decision makers ideally estimate opportunity costs before making decisions. However, managers in the business world seldom have the luxury of being able to assess true opportunity cost because estimating opportunity costs would require the decision maker to evaluate all possible decisions and determining relevant values for each one. For example, the decision to replace old equipment with ...