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Tutorial group : Group 2 Enrolment number : 00054178 The nature of cost Some characteristics of cost should first be noted. Firstly, costs are not essentially equal to payments. Secondly, costs are in forward-looking manner because it is meaningless looking back to past. The only solution of business problem is to consider 'opportunity cost' or 'alternative cost'. That means the highest alternative net receipt among all other opened alternatives to the business. Materials cost, depreciation and interest on capital are considered as examples of applying opportunity cost concept. In calculating materials cost, either the estimated spent money amount on purchase if materials are not in stock or the purchasing amount paid of the oldest part of stock, the average amount paid, market price at the issued time or the highest amount paid of stock if materials are in stock is taken into account. Whereas applying the opportunity cost concept, which concerns the price...

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