Question

Distinguish between explicit cost and implicit cost

Answer 1

Answer:

Implicit costs are technically not incurred and cannot be measured accurately for accounting purposes. There are no cash exchanges in the realization of implicit costs. But they are an important consideration because they help managers make effective decisions for the company.

These expenses are a big contrast to explicit costs, the other broad categorization of business expenses. They represent any costs involved in the payment of cash or another tangible resource by a company. Rent, salary, and other operating expenses are considered explicit costs. They are all recorded within a company's financial statements.

The main difference between the two types of costs is that implicit costs are opportunity costs, while explicit costs are expenses paid with a company's own tangible assets. This makes implicit costs synonymous with imputed costs, while explicit costs are considered out-of-pocket expenses. Implicit costs are harder to measure than explicit ones, which makes implicit costs more subjective. Implicit costs help managers calculate overall economic profit, while explicit costs are used to calculate accounting profit and economic profit.