Find out explicit and implicit cost from the following:
a. Investment in fixed assets 2000
b. Borrowings at 12% interest per annum 1500
c. Wages paid during the year 120
d. Annual rental value of the owner's factory building 100
e. Annual depreciation 100
f. Estimated annial value of the management services of the owner 240
Dear Student,
(a) Explicit cost = Interest on borrowings+ Wages paid+ Depreciation
= 180+ 120+100
= 400
(b) Implicit cost = Imputed interest on Own investment of Rs 500 @ 12%+ Rental value of the owner's factory building+ Imputed of the management services of the owner
=60+100+240
=400
(a) Explicit cost = Interest on borrowings+ Wages paid+ Depreciation
= 180+ 120+100
= 400
(b) Implicit cost = Imputed interest on Own investment of Rs 500 @ 12%+ Rental value of the owner's factory building+ Imputed of the management services of the owner
=60+100+240
=400