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A financial decision between two alternatives should be based on a systematic comparison of their costs, returns, cash flows, and profitability. In Business Mathematics and Statistics, two options can be compared by using mathematical techniques such as total cost analysis, profit analysis, return on investment, break-even analysis, present value, future value, and net present value. The financially preferable option is the one that provides the greater economic benefit after considering all relevant costs and the time value of money. Suppose a business has two investment alternatives, Option A and Option B. The first step is to identify the initial investment required under each option. Initial investment may include the purchase price of machinery, installation expenses, transportation charges, training costs, and other expenses incurred before the project begins. If Option A requires an initial investment of ₹5,00,000 while Option B requires ₹7,00,000, Option B cannot automatically be considered inferior merely because its initial cost is higher. Its higher investment may generate substantially greater future returns. The next important factor is the operating cost associated with each option. Operating costs may include labour, raw materials, electricity, maintenance, insurance, administration, and other recurring expenses. If Option A has lower operating expenses than Option B, it may have an advantage in terms of annual savings. However, the comparison should consider both costs and benefits together. A high-cost option may still be preferable if it produces higher sales revenue, greater savings, or increased productivity. Total cost can be expressed as: Total Cost = Fixed Cost + Variable Cost Similarly, total profit can be calculated as: Profit = Total Revenue − Total Cost Therefore, if the expected annual revenue from Option A is ₹8,00,000 and its total annual cost is ____ ________ ____ ________ _______ _____ _________ ______ _________ __________ ______.
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