distinguish between Explicit cost and Implicit cost and given example
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Basis of Difference
Explicit Costs
Implicit Costs
Meaning
Explicit cost refers to the expenditures incurred or payments made by a firm to various factors of production and also non-factors of production.
Implicit cost refers to the opportunity cost of using the firm’s own resources.
Record in books of account
These costs are recorded in the books of account
These costs are not recorded in the books of account
Other name
These costs are also called as ‘out of the pocket expenses’
These costs are also called ‘economic cost’
Cash outlay from business
In case of explicit cost there is an cash outlay from the business
In case of implicit cost there is no cash outlay from the business.
Deals with
Such cost deals with the expenditure incurred on the tangible items
Such cost deals with the expenditure incurred on the intangible items.
Example
For example, payments in the form of wages for labour, rent for building.
For example, imputed value of the services of the owner of the firm, imputed rent of the owner occupied building.