Income Tax Expert Interview Question:

Do you know what is Opportunity Cost and Differential Cost?

Submitted by: Muhammad

Opportunity Cost is the cost incurred by the organisation when one alternative is selected over another. For example: A person has Rs. 100000 and he has two options to invest his money, either invests in fixed deposit scheme or buy a land with the money. If he decides to put is money to buy the land then the loss of interest which he could have received on fixed deposit would be an opportunity cost.

Differential Cost is the difference between the costs of two alternatives. It includes both cost increase and cost decrease. It can be either variable or fixed.

Example:
Cost of first alternative = 10000; Cost of second alternative = 5000; Differential Cost = 10000 – 5000 = 5000
Submitted by: Muhammad