Explicit Cost
Explicit cost is a type of cost that is directly incurred by a business. It is a cost that is directly paid out in cash or its equivalent. Explicit costs are also known as out-of-pocket costs, cash costs, or accounting costs. Examples of explicit costs include wages, rent, utilities, and raw materials. These costs are recorded in the company’s financial statements and are used to calculate the company’s profit or loss.
History of Explicit Cost
Explicit costs have been around since the beginning of business. The concept of explicit costs was first introduced by the French economist Jean-Baptiste Say in the early 19th century. Say argued that explicit costs are the costs that are directly incurred by a business and are necessary for the production of goods and services. Since then, explicit costs have been used by businesses to measure their profitability and to make decisions about how to allocate resources.
Comparison of Explicit Cost and Implicit Cost
| Explicit Cost | Implicit Cost |
|---|---|
| Directly incurred by a business | Opportunity cost |
| Paid out in cash or its equivalent | Not paid out in cash |
| Recorded in the company’s financial statements | Not recorded in the company’s financial statements |
| Used to calculate the company’s profit or loss | Not used to calculate the company’s profit or loss |
Summary
Explicit cost is a type of cost that is directly incurred by a business. It is a cost that is paid out in cash or its equivalent and is recorded in the company’s financial statements. Explicit costs are used to calculate the company’s profit or loss. For more information about explicit costs, you can visit websites such as Investopedia, The Balance, and AccountingTools.
See Also
- Implicit Cost
- Opportunity Cost
- Fixed Cost
- Variable Cost
- Marginal Cost
- Average Cost
- Sunk Cost
- Direct Cost
- Indirect Cost
- Total Cost
