Question

Describe McFriendly’s opportunity cost if it (1) accepts Jupiter’s offer and (2) turns down the offer and markets Easy-Calc itself. Would these opportunity costs be recorded in McFriendly’s accounting records? If so, explain the journal entry to record these costs.

Answer 1

Answer:

The opportunity cost of a choice is the value of the best alternative forgone, in a situation in which a choice needs to be made between several mutually exclusive alternatives given limited resources. Assuming the best choice is made, it is the "cost" incurred by not enjoying the benefit that would be had by taking the second best choice available.

So, if it accepts the offer of Jupiter it will lost the extra revenue what it will get if it opt for second alternative. But here we dont have any information regarding the revenues from second alternative. so it difficult to calculate the opportunity cost in case 1

If we know the sales revenue from email marketing alternative and if it is more than the sales revenue from jupiter offer then opportunity cost is $10million

No entry is required in books of accounts