When assessing relevant costs, it is important to consider why one is evaluating the cost to begin with. Economists assess both the accounting costs of a business as well as the implicit costs (Froeb et al., 2018). Implicit costs are costs that are not made obvious on the balance sheet. It is possible for a firm to reveal an accounting profit while suffering economic losses (Froeb et al., 2018). I have witnessed my own organization mitigate their irrelevant costs.

At my current hospital, the organization decided to invest in a neuroscience building across the street. This expenditure was millions of dollars, but was meant to build confidence in our newly developing neuroscience team. After the building was built, the organization realized that the building was costing more money than they had expected. Initially, they attempted renting space out until they ultimately decided to sell the building and rent it themselves. There might have been a lack of consideration for the return on the investment of a new building. Perhaps the revenue that the organization was expecting to generate from its neuroscience program did not come to fruition in the amount of time they had hoped for. Regardless, the organization sold the building about a year after it was opened.

 

JUSTIFY or Agree/Disagree with the writer or Answer the above. And please do mention if you are Justifying, Agreeing, Disagreeing or answering the above.

Answer rating: 100% (QA)

I agree with the writers point that organizations must consider both accounting costs and implicit costs when evaluating their investments The example ... View the full answer