Opportunity Cost and

Local Regulatory
Agencies
 Cost
Costs are the necessary
expenditures that must be made in
order to run a business.

An amount that has to be paid or

given up in order to get
something.

In business, cost is usually

a monetary valuation
What is Opportunity Cost?
Opportunity costs represent the benefits an individual, investor
or business misses out on when choosing one alternative over
another.

Opportunity cost can be termed as the next best alternative of

a particular option which has been executed or about to
execute. It can be a project foreign investment or a particular
option taken by a group of people or an individual for personal
purpose or for a business purpose. It is a hypothetical
assumption and often measured to get the value of the actual
decision made.
 Categories of Costs

Management Function Ease of Traceability

Timing of Charge
Behavior in accordance
against Revenue
with activity

Relevance to Decision
Making
Costs According to Management Function
Non-
Manufacturing manufacturing
Cost Cost
incurred in the factory to not incurred in
convert raw materials transforming materials
into finished goods. to finished goods.

Example Example
cost of raw materials used (direct selling expenses (such as
materials), direct labor, and advertising costs, delivery
factory overhead. expense, salaries and commission
of salesmen) and administrative
expenses (such as salaries of
executives and legal expenses).
Cost according to Ease of Traceability
Direct Cost Indirect Cost

those that can be traced those that cannot be

directly to a particular traced to a particular
object of costing such object of costing. They
as a particular product, are also called common
department, or branch. costs or joint costs.

Example Example
materials and direct labor. Some factory overhead and operating
operating expenses can also be costs that benefit more than one
classified as direct costs, such as product, department, or branch.
advertising cost for a particular
product.
Cost according to Timing of Charge Against Revenue

Product Cost Period Cost

are inventoriable costs. are not inventoriable

They form part of inventory
and are charged against
and are charged against
revenue, i.e. cost of sales,
revenue immediately.
only when sold. Period costs include
non-manufacturing
costs

Example Example
All manufacturing costs (direct non-manufacturing costs, i.e.
materials, direct labor, and factory selling expenses and
overhead) are product costs. administrative expenses.
Cost According to Behavior in Accordance with Activity

Variable Costs Fixed Costs Mixed Costs

vary in total in proportion costs that remain constant costs that vary in total but not
to changes in activity. regardless of the level of in proportion to changes in
Examples include direct activity. Examples include activity. It basically includes a
fixed cost potion plus
materials, direct labor, and rent, insurance, and
additional variable costs. An
sales commission based depreciation using the example would be electricity
on sales. straight line method. expense that consists of a
fixed amount plus variable
charges based on usage.
Cost According to Relevance in Decision Making
Relevant Cost Standard Cost
predetermined cost based on some
cost that will differ under alternative reasonable basis such as past experiences,
courses of action. In other words, these budgeted amounts, industry standards, etc.
costs refer to those that will affect a The actual costs incurred are compared to
decision. standard costs.

Opportunity Cost Sunk Cost

benefit forgone or given up when an alternative is
chosen over the other/s. Example: If a business chooses historical costs that will not make any
to use its building for production rather than rent it out to difference in making a decision. Unlike
tenants, the opportunity cost would be the rent income relevant costs, they do not have an impact on
that would be earned had the business chose to rent out. the matter at hand.

Controllable Cost
refer to costs that can be influenced or controlled by
the manager. Segment managers should be
evaluated based on costs that they can control.
Opportunity Cost
Opportunity Cost and Capital Structure

Opportunity cost analysis also plays a crucial

role in determining a business's capital
structure. While both debt and equity require
expense to compensate lenders and
shareholders for the risk of investment, each
also carries an opportunity cost. Funds used
to make payments on loans, for example, are
not being invested in stocks or bonds, which
offer the potential for investment income. The
company must decide if the expansion made
by the leveraging power of debt will generate
greater profits than it could make through
investments.
Opportunity Cost

Risk vs. Opportunity Cost

In economics, risk describes the possibility
that an investment's actual and projected
returns are different and that the investor loses
some or all of the principal. Opportunity cost
concerns the possibility that the returns of a
chosen investment are lower than the returns
of a forgone investment. The key difference is
that risk compares the actual performance of
an investment against the projected
performance of the same investment, while
opportunity cost compares the actual
performance of an investment against the
actual performance of different investment.
 Regulatory Agencies

Philippine Securities Bangko Sentral ng

and Exchange Pilipinas (Central Bank
Commission (SEC) of the Philippines)

Philippine Deposit
Department of Finance
Insurance Corporation
(DOF)
(PDIC)

Philippine Stock
Exchange (PSE) Bureau of Treasury
Role of Philippine Securities and Exchange Commission (SEC)

responsible for regulating the

securities industry in the Philippines. In
addition to its regulatory functions, the
SEC also maintains the country's
company register.

Role of Bangko Sentral ng Pilipinas

The BSP provides policy directions in

the areas of money, banking and credit.
It supervises operations of banks and
exercises regulatory powers over non-
bank financial institutions with quasi-
banking function
Role of PDIC

PDIC exists to protect depositors by

providing deposit insurance coverage
for the depositing public and help
promote financial stability

Role of Deparment of Finance

The Department of Finance (DOF) is

responsible for the management of the
government's financial resources. Its
duties include policy formulation,
revenue generation, resource
mobilization, debt management, and
financial market development.
Role of PSE

Its main function is to facilitate the

buying and selling of stocks and other
securities through its accredited
trading participants.

Role of Bureau of Treasury

functions of issuance, recording,
settlement and servicing of
Government Securities pursuant to
Republic Act No. 7653, otherwise
known as the "New Central Bank of
1993".
References:

http://www.bsp.gov.ph/about/functions.asp
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