implicit cost

(redirected from Indirect Expense)
Also found in: Encyclopedia.

Implicit Cost

The opportunity cost of an activity. Implicit costs are what a company or individual could have earned had a different decision been made. For example, suppose an independent consultant has two clients and she spends some time working on the first client's project. The implicit costs are what the consultant would have made had she worked on the second client's project instead. Implicit costs contrast with explicit costs, which are what someone actually spends on an activity. It is also called an indirect cost.

implicit cost

or

imputed cost

the OPPORTUNITY COST to a FIRM of using resources owned by the firm itself to produce its output. For example, if a firm occupies a building that it owns, it forgoes the opportunity of renting it out for some other use. Thus, implicit costs represent the sacrifice of income that could have been earned by renting out (or selling) the firm's resources to others.

To achieve an accurate measure of the total cost of producing goods or services, the firm must impute a rent to itself using a SHADOW PRICE based upon the current market rates for renting the property See PROFIT, EXPLICIT COST.

implicit cost

or

imputed cost

the OPPORTUNITY COST to a FIRM of using resources owned by the firm itself to produce its output. For example, if a firm occupies a building that it owns, it foregoes the opportunity of renting it out for some other alternative use. Thus, implicit costs represent the sacrifice of income that could have been earned by renting out (or selling) the firm's resources to others.

To achieve an accurate measure of the total cost of producing goods or services, the firm must impute a rent to itself based upon the current market rate for renting the property See PROFIT, EXPLICIT COST, SHADOW PRICE.

References in periodicals archive ?
announced a strategic collaboration agreement today, focused on indirect expense management.
The general definition of a direct expense is a cost item over which the servicing management has control, while indirect expense is generally not controllable.
Starting about 1989 and continuing through 1991, Bagley became aware of false indirect expense claims TRW was making to the government.
The system should allow users to set up an unlimited number of primary and intermediate cost pools and bases, using general ledger balances for calculating indirect expense rates.
The workforce reductions announced in the fifth month are expected to result in $1 billion annual pretax payroll and indirect expense savings.
Coronary artery disease is the most common and expensive medical condition in the United States, costing approximately $60 billion annually in direct and indirect expense, Dr.
To rank risks of vendors and classes of indirect charges, follow a list of identifiable evaluation criteria, such as where the vendor is domiciled, what the dollar amount of an indirect expense is, or how long a vendor has been providing services.
MBS interest expense--or the amount of uncollected interest required to be passed on to security holders when a loan is not paid off on the first day of the month--was the largest contributor to the overall increase in indirect expense, climbing 53 percent to $78 per loan in 2003 from $53 per loan in 2002.
Interim indirect expense rates must be calculated monthly from the books of account and must be routinely monitored.
The department does pay its share of overall store lighting and an indirect expense for the front end's lighting.
Blind cost cuts may work in a pre-merger environment, when indirect expense levels grow somewhat predictably from year to year.