Question

Find out (a) explicit cost and (b) implicit cost from the following:

(i) Investment in fixed assets 2000

(ii) Borrowings at 12% interest per annum 1500

(iii) Wages paid during the year 120

(iv) Annual rental value of the owner's

factory building 100

(v) Annual depreciation 100

(vi) Estimated annual value of the management

services of the owner 240

Answer 1

$\text{(a) Explicit cost = Interest on borrowings = 180 (Rs. 1000)}\text{+ Wages paid + 120}\text{+ Depreciation + 100}\text{---------}\text{Total = 400}\text{---------}$

$\text{(b) Implicit cost = Imputed interest}\text{Own investment of Rs. 500}\text{Thousand @ 12 \%}60\text{+ Rental value}100\text{+ Imputed value of}\text{Owner's services}240\text{---------}\text{Total = 400}\text{---------}$