implicit cost

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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 ?
Starting about 1989 and continuing through 1991, Bagley became aware of false indirect expense claims TRW was making to the government.
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Adding direct and indirect expenses on each expense line leads to a before-tax operating profit and loss statement.
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The area can be measured in square feet, or if the rooms are about the same size, the indirect expense may be allocated by number of rooms.
By evaluating the TCoTr of the investment on an ATM tender, banks can find out its indirect expense and make decision in a more sophisticated and comprehensive perspective.
Indirect expense refers to costs that management considers to be overhead in running the business.
Now the practices of AdviCoaches can also offer companies and organizations measurable cost savings in various indirect expense categories such as supplies, telecommunications, staffing, printing, maintenance contracts and professional services.