300 words or more Accounting Discussion responses in 24 hrs

Respond to two or more of your colleagues’ posts in one or more of the following ways: (***Respond to each Colleague 150 words or more)****

· Compare the sunk or opportunity cost example that your colleague described to your own professional experience.

· Provide an insight you gained from your colleague’s analysis of how the cost impacted the organization and the stakeholders.

· Propose an additional way to address the scenario that your colleague described.

Return to this Discussion in a few days to read the responses to your initial posting. Note what you have learned or any insights you have gained as a result of the comments your colleagues made.

1st Colleague to respond to:

Defining sunk cost, it is imperative to explain that they are costs expensed in the past. Ongoing or future activities/decision will not be changed by this expenditure (Walden University, LLC., 2021). Sunk costs are also known as retrospective cost, in reference to an investment that cannot be recovered and already occurred. Examples of sunk costs in business include facilities expenditures, benefits/salaries, software/equipment purchase or installation, and research/design/marketing expenditures. Research suggested the irrelevance of sunk cost to future decision making. Conversely, sunk cost poses a major influence to decisions regarding the future, predominantly because of the psychological challenges with letting go of the previously invested financial resources, effort, and time, especially if the outcomes of the expenditure that failed to meet expectations (Roth, Robbert, & Straus, 2015).

Conversely, opportunity cost is defined as the probable returns not earned at a future time because funds were invested somewhere else. As a forgone alternative, opportunity costs are benefits forgone as an opportunity of choosing an alternative (Walden University, LLC., 2021). Opportunity cost is the income in the future that could have been earned if the alternative/option was chosen. An example is the opportunity cost on the choice of doing something or expensing a resource over another.

Impact of Sunk and Opportunity Cost

            Impacts of sunk cost are predominantly expressed around utilization decisions, indicating a reverse direction, culminating to a weak to moderate positive influence on usage intensity or choices (Roth, Robbert, & Straus, 2015). Researchers of behavioral economics opined that there is a variation with decision-making, especially if there are copious amounts of resources and time invested on the issue (Arkes & Blumer, 1985). It presents a mindset that there is a huge tendency to continue this endeavor as long as there has been a considerable amount of resource expended, albeit its irrationality (Arkes & Blumer, 1985). This culminates to a negative feeling of wastefulness and guilt, resulting from abandoning an effort after resources has been expended on it. This creates a consequence akin to the proclivity for our emotions to cause us to deviate from rational decisions, thus obfuscating rational thought processes. Although not be considered in evaluating alternative, sunk costs are valuable apropos accountability (Walden University, LLC., 2021). A thorough comprehension of the fundamental psychology of sunk cost can further illustrate the complexities of letting go.

            The impact of opportunity costs can touch several areas of one life, to include critical effects on elements of lifestyle, family, home, career, and money. It is explicated as a missed opportunity on a potential benefit that can be derived on a business or investment with the choice of another alternative. Opportunity costs can also impact personal happiness, akin to asking a divorcee what life would have been not been married, passing on buying a dream house, or the opportunity cost of not seeking a master’s degree.

Addressing a Scenario with Sunk Costs and Opportunity Costs

            A scenario with sunk cost can be expressed as a startup failure. Although can easily be attributed to sunk cost, as costs expensed in the past, but it is imperative to see that the value of business acumen gained might outweigh the sunk cost of the failure. Scenarios with opportunity costs for instance include thought processes on the sweat equity or effort akin to ascending a corporate ladder or starting a business. This involves a consideration of factoring in the extra efforts involved, constituting the opportunity cost missed if climbing the corporate ladder is the choice. Imperative to also consider is the time investment in opportunity cost, which can be more priceless than cash. Time necessitated for a lifestyle change is an important dynamic of consideration with the consideration of any opportunity (Riani, 2022)

Reference

Arkes, H. R., & Blumer, C., (1985). The psychology of sunk cost.  Organizational Behavior and Human Decision Processes, 35(1), 124-140. doi:10.1016/0749-5978(85)90049-4

 

Walden University, LLC. (2021).  Cost considerations for accounting decision making. Walden University Blackboard. Retrieved from https://content.waldenu.edu/content/dam/laureate/laureate-academics/wal/ms-wmba/wmba-6050-sym36rh6/week-03/USW1_WMBA_6050_Week03_CostConsiderations.pdf

 

Riani, A. (2022). Sunk Costs and Opportunity Costs in Startups. Retrieved from https://www.forbes.com/sites/abdoriani/2022/01/31/sunk-costs-and-opportunity-costs-in-startups/?sh=e85d2a2d25ff

 

Roth, S., Robbert, T., & Straus, L. (2015). On the sunk-cost effect in economic decision-making: a meta-analytic review.  Business Research, 8(1), 99-138. doi:10.1007/s40685-014-0014-8

2nd Colleague to respond to:

In my current role as a small business owner, I service clients with many hairstyles. I oversee all business operations, such as marketing my business which is my example of “sunk cost”. Sunk Costs are costs that have been incurred previously, and present or future decisions will not change that fact (Weygandtet al., 2017). They cannot be recovered.

To market my business, I must use software to create flyers and videography to showcase the services offered and the costs. For booking, I use Acuity Scheduling software which cost around $15 a month to display my business, availability, services, and costs. Once the money is withdrawn for that month it cannot be recovered. I also purchased Canva software to create flyers and visual ads.

The only hiccup when running your own business by purchasing software and equipment is that it takes money to make money. While I’m trying to save money and increase my revenue, I’m having to issue funds constantly to market and improve the quality of my services. However, it’s beneficial to the success of your organization and you’d make back more typically if your budget and price are correct.

As a manager and or CEO I would always choose quality over quantity. To succeed and have high-quality services and or products you must invest. It sucks to have to issue out money but in the end, it’s worth it. As a manager, I’d always make the best decisions for the sake of my organization’s success. I would make decisions based on long-term success rather than short-term.

Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2017). Managerial accounting: Tools for business decision makers (8th ed.). Wiley.