Business Plan- Landscaping Business

What is a business decision that the landscaping company has to make and then identify, define and explain an incremental cost, opportunity cost and sunk cost. Please be creative in your response and make it 2 paragraphs.

ANSWER

Landscaping Business

A landscaping company may opt to make changes at the back yard y removing the grass and considering gravelscaping. This would be a great recommendation, especially in states like Los Angeles that experience minimal rainfall, therefore necessitating the need for conserving water. However, this move will have both positive and negative impacts, both financially and environmentally. For the environmental aspect, Gravelscaping can amplify the heat throughout the neighbourhood and make living uncomfortable. The rocks also don’t absorb water; therefore, water from excess rain may lead to flooding. However, financially, there are positive benefits that accrue from Gravelscaping in terms of opportunity cost, sunk cost, and incremental cost.

An incremental cost is the amount of additional money that a company would face by opting to add a unit (Polley, 2015). By analyzing the opportunity cost, the company can ascertain whether adding the unit would be beneficial in the long run. For the landscaping company, gravelscaping would be an additional cost but cheaper compared to using grass. The cost of watering grass in dry areas would be higher than using rocks, which would be a one-time cost. An opportunity cost is the forgone benefit from an option not chosen over another (Polley, 2015). This is normally experienced by considering two products and choosing the more beneficial one. In this case, choosing gravelscaping over grass would deem the grass option as the opportunity cost. Finally, the sunk cost is the unrecoverable money spent by a business. It is a financial decision that is not based on future budgetary concerns (Dunxbury, 2012). It focuses on the decision at hand and the cost to be incurred. In this case, the decision would be to implement gravelscaping in the backyard without considering whether or not it would save money in the future. Thus, purchasing and installing the gravel would be the sunk cost.

References

Duxbury, D. (2012). Sunk costs and sunk benefits: A re-examination of re-investment decisions. The British Accounting Review, 44(3), 144-156.

Polley, W. J. (2015). The rhetoric of opportunity cost. The American Economist, 60(1), 9-19.