Implicit costs area)Total costb)Same as explicit costsc)Opportunity costsd)Imputed costsCorrect answer is option 'D'. Can you explain this answer?

Question

Answer

Implicit costs are the cost of self supplied

Answer

Implicit cost is actually the cost that is the consequence of using the assets, instead of lending, selling or renting them. It also means the income that is forgone from making a choice of not to work. Implicit cost is also known as implied cost, notional cost or imputed cost.

Answer

The answer is D.The reason behind I chose the D op

tion because it is imputed

Answer

Implicit costs refer to the opportunity costs of using resources in a particular way. These costs are not recorded in the accounting books of a business but are still relevant in the decision-making process. Implicit costs are often associated with the concept of imputed costs, which are costs that are not incurred but are still considered in the decision-making process.

Opportunity costs:

Opportunity costs are the value of the next best alternative foregone when a decision is made. In the case of implicit costs, the opportunity cost is the value of the resources used in the business that could have been used for alternative purposes. For example, if a business owner decides to use their own personal savings to finance the business instead of investing it in the stock market, the opportunity cost would be the potential return they could have earned from the stock market.

Imputed costs:

Imputed costs are a type of opportunity cost that refers to the value of resources owned by the business but not explicitly accounted for. These costs are typically associated with self-owned resources or assets. For example, if a business owner uses their own building for the business instead of renting it out to another business, the imputed cost would be the rental income that could have been earned if the building was rented out.

Difference between implicit costs and explicit costs:

Explicit costs are the actual out-of-pocket expenses incurred by a business, such as wages, rent, and utilities. These costs are recorded in the accounting books and can be easily measured. On the other hand, implicit costs are not recorded in the accounting books and are often more difficult to measure. Implicit costs are based on opportunity costs and imputed costs, which require estimating the value of resources used or foregone.

Conclusion:

Implicit costs, specifically imputed costs, are an important consideration in decision-making as they reflect the opportunity costs of using resources in a particular way. These costs are not recorded in the accounting books but are still relevant in assessing the true cost of a business decision. Understanding and considering implicit costs can help businesses make more informed decisions and allocate resources effectively.

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