EXPLICIT VS IMPLICIT COSTS
The difference between Explicit vs Implicit costs are as follows:
Explicit costs refer to all those expenses made by a firm to buy goods directly. They include, payments for raw material, taxes and depreciation charges, transportation, power, high fuel, advertising and so on.
According to Leftwitch,
“Explicit costs are those cash payments which firms make to outsiders for their services and goods.”
Wages to workers, money paid for raw materials and semi-finished goods, various fixed costs etc. are examples of explicit costs. The producer takes money out of his pocket and pays to others. These are payments to attract resources from other uses to the use made by a particular producer. They are also known as Accounting Costs or Historical Costs.
Implicit costs are the imputed value of the entrepreneur’s own resources and Services. In fact, these costs refer to the implied or unnoticed costs. They include the interest on his own capital, rent on his land, wages of his own labour etc. Moreover, these costs go to the entrepreneur himself and are not recorded in practice.
According to Leftwitch
“Implicit costs are the costs of self-owned, self employed resources.”
|BASIS OF DIFFERENCE||EXPLICIT COST||IMPLICIT COST|
|Meaning||The costs which involve outflow of cash due to the use of factors of production is known as Explicit Cost.||The costs in which there is no cash outlay, is known as Implicit Cost.|
|Alternatively known as||It is also known as Out-of-pocket Costs||It is also known as Imputed Costs|
|Occurrence||This is the Actual cost in nature.||This is Implied cost in nature.|
|Recording and Reporting||It is recorded and reported in the books of accounts.||It is not recorded and reported in the books of accounts.|
|Estimation of Cost||The estimation of cost is Objective.||The estimation of cost is Subjective.|
|Which profit can be calculated with the help of cost?||This helps in calculating Accounting Profit and Economic Profit.||This helps in calculation of Economic Profit.|
|Example||Salaries, rent, advertisement, wages, etc.||Interest on owner’s capital, Salary to owner, rent of owner’s building, etc. which do not occur in reality.|