When Do Opportunity Costs Count - Article Example

When do Opportunity Costs Count The article, “When Do Opportunity Costs Count? The Impact of Vagueness, Project Completion Stage, and Management Accounting Experience” by Lisa Marie Victoravich published in the Year 2010 addresses the issues related to the effect of opportunity costs. This article examines all the possible results of opportunity cost and the impact of including or excluding such opportunity costs while appraising any business venture or any project. This article points out that the opportunity costs are a relevant cost when ascertaining any given project.

This is further elaborated by dividing the opportunity costs into two different categories such as opportunity cost vagueness and the project completion stage and that management accounting practice and understanding reduces the ability to include these two different categories. Besides this, the research also assesses the impact of not considering opportunity as a relevant cost and not including them in the project appraisal. The author in this article initiated with defining opportunity costs and how the knowledge is gained to properly identify the opportunity costs in any working environment.

The author illustrated this idea by considering two different groups of people. This was experimented by using management accounting students with management accounting professionals (having proper management accounting work exposure and experience). Thus, this experiment lead to the conclusion that professional management accountants were more capable at identifying the opportunity costs associated with any project. This better identification of the opportunity costs was declared as the procedural knowledge by the writer.

Later, the writer explains that opportunity costs perform as a referee between the two issues of the opportunity cost vagueness and the project completion stage. Opportunity cost vagueness, as described by the writer, is the inability to derive a proper and exact value for the benefit forgone i.e. the opportunity cost. The writer further explains that management accountants usually use estimates of opportunity costs and then these estimates are included in the final appraisal of a project. The management accountants who had higher knowledge of the Generally Accepted Accounting Principles were deemed to consider opportunity costs lightly as compared to accountants who had lesser knowledge of these Generally Accepted Accounting Principles.

According to the writer, at the project completion stage, individual tend to invest heavily in the project with a rush to finish off the project even in circumstances when the project is profitable one. The opportunity costs are almost ignored at the completion stage. The main aim of the writer was to draw attention to the opportunity costs in this research paper and it has been heavily evidenced by the experiments and hypothesis carried out by the writer. Opportunity costs are relevant costs and shall be included in almost every project appraisal.

Failures to include such costs lead the investors to invest in unfavorable projects, which eventually make them loose their money. These costs are usually included and evaluated by management accountant in any given project because of the experience that they have, although the opportunity costs calculated are a bit unclear, nonetheless they help investors in avoiding any possible losses. In totality, opportunity costs are of essence when appraising any capital project.(VICTORAVICH, L. M. (2010)BibliographyVICTORAVICH, L. M. (2010).

When Do Opportunity Costs Count? The Impact of Vagueness, Project Completion Stage, and Management Accounting Experience. Behavioral Research in Accounting. 22, 8