Write differences between Explicit and Implicit Costs.
Answers
Key Differences Between Explicit Cost and Implicit Cost
The following are the major differences between explicit cost and implicit cost
Explicit Cost is incurred when the entity has to pay for the utilisation of factors of production. Implicit Cost is the opportunity cost, which is incurred when the entity uses the owner’s resources like capital inventory etc.
Explicit Cost is also known as out-of-pocket cost while Implicit costs are known as imputed cost.
Explicit Cost can be easily ascertained, but it is just opposite in the case of Implicit Cost as it does not have any paper trail.
The measurement of Explicit Cost is objective in nature because it is actually incurred whereas Implicit Cost occurs indirectly and that is why its measurement is subjective.
Explicit Cost helps in the calculation of both accounting profit and economic profit. Conversely, Implicit Cost helps in the calculation of only economic profit.
Explicit Cost is recorded and reported to the management. On the other hand, the implicit cost is neither recorded nor reported to the management of the company.