Opportunity Cost vs Marginal Cost

In whether to choose which alternatives that will provide an advantage than the other can be managed by applying the managerial accounting principle. It is a significant part of financial reporting as it influences the denim making of the potential users of the financial information. An opportunity cost is a value imported with to choose the best alternative. In this approach, you have to sacrifice something so you will gain something. Let’s say when a person is not satisfied with his salary he may study a Masters degree for promotion but he have to pay the enrollment fee as the opportunity cost.

  Opportunity cost Marginal cost
Denote Opportunity forgone to obtain another unit Cost incurred to produce another unit
Origin Coined by Friedrich von Wieserin 1914 Medieval Latin “marginalis” edge, brink ,border and  Old French ‘cost”  outlay, expenditure
Consists of ·         Value of lost time

·         Output

·         Utility

·         Benefits if previous choice was made

·         Labor and material costs

·         Estimated portion of fixed costs(administration overhead and expenses)

Monetary value Both yes and no Yes
Visible No Yes

On the other hand, a marginal cost is an approach intended for manufacturing industries. It is the cost spent for an additional unit to be sold in the future. Again, a value is spent yet you will gain something at the later periods. Manufacturing firms engaged in producing extra units to adjust their sales and generate more profit. These managerial accounting principles are vital to the organization’s decision making to have an efficient service and achieve an optimum performance. Both of the cost principles are sacrificing something before a return can be gained.

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