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Hello John sir …i am currently preparing for PM exam….as i referred to your videos and answers in many previous paper…..for this one time i want your reference to my doubt in PM.
What i want to ask is that ACCA study hub says that opportunity cost occurs when there are scarce resource with several possible uses.But none of the book specifies whether this applies to sacrifice of new projects or only existing use of resources.
For deciding the minimum price of one off contract we take all relevant costs….but what i cannot understand is what if there are two NEW available ,but due to LIMITED RESOURCE ONLY ONE CAN BE TAKEN,one off contracts and we are asked to find the minimum price of ONE of the contract.
Will we take the benefit foregone of the other NEW ONE OFF CONTRACT in calculation of the MINIMUM PRICE of the asked contract or that for calculation of minimum price only the sacrifice of existing benefit is considered as the opportunity cost???
Even if the answer is yes another complication that arises is that for calculation of benefit foregone of other contract…we need the benefit of the asked contract as an opportunity cost..??
It all feels so complicated …kindly help with regards to whether the minimum price of one off contract include opportunity cost of only existing use sacrifice??It depends really on the exact wording of the question. But normally if there are two projects available and only one can be chosen then we use the relevant cost of each project when making the decision, and there is no opportunity cost involved as regards the other project.
So it means that if there are two new projects available we would just compare them
And for each project we will use the opportunity cost of their EXISTING USE as opportunity cost rather than opportunity cost of other new project in
RightRelevant cost of existing use means for example if there is labour to be used in both project but will have to be diverted from other department….we will use as cost the opportunity lost of labour ….right???
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