Cost theory and estimation

Abstract

The motivation in considering the theory and estimation of costs is to provide cost estimates that are relevant to decision-making. Optimal decision-making requires the careful comparison of the costs and benefits of any action. In evaluating these costs, it is essential to have regard to the cost concept relevant to decision-making. The adoption of any particular course of action or the use of any resource imposes a cost in terms of opportunities foregone. It is this opportunity cost which is the relevant cost concept in deciding on a particular course of action.