Cost Controls Practice Test

Opportunity cost is the value of the best alternative you give up when you make a choice. It captures the potential gains you miss out on by not selecting the next-best option. In cost decisions, recognizing this helps you compare what you could have achieved with the foregone option versus what you gain with the option you choose. For example, allocating budget to one project means you forgo the potential returns from other projects you could have funded with that money. Sunk costs are past, unrecoverable expenditures and shouldn’t influence current decisions. Book costs are historical accounting values, not the forgone benefits of alternatives. Marginal costs are the additional costs of producing one more unit, not the opportunity lost by choosing one option over another.