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John Moffat.
John Moffat.-
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AshleyMarc1997
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Could you please tell me what is ‘Net Benefit from alternative use’ in case where we have material which is not in regular use; then the opportunity cost is higher of either Scrap value/Net disposal or Net Benefit from alternative use.
Is it true that Net benefit from alternative use is the lost contribution that we lose by employing the material in our project from another project, so we lose contribution from another project. Is that correct?
John Moffat
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That would be correct 🙂
Have you watched my free lectures on relevant costing?
AshleyMarc1997
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Yes, I have watched your lecture 🙂
Can you please give me an example of a Net benefit from alternative use? (I hope you would not mind)
Secondly, I have confused whether the opportunity cost is the lost contribution (or they simply two different things?) please explain!
John Moffat
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Suppose we have some material that could either be used to make something that would generate a contribution of $10 per unit, or we could use in a new contract.
If we use it in the new contract then we would not be earning the $10 from the alternative and so the $10 we would not be getting would be an opportunity cost of doing the new contract.
AshleyMarc1997
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