Find out (a) explicit cost, and (b) implicit cost from the following:
In Lakhs
(i) Investment in fixed assets 40
(ii) Borrowings at 12% interest per annum 30
(iii) Wages paid during the year 12
(iv) Annual rental value of the owner’s factory building 18
(v) Annual depreciation 10
(vi) Estimated annual value of the management services of the owner 24
Dear Student,
(a) Explicit cost = Interest on borrowings+ Wages paid+ Depreciation
= (30*12%)+ 12+10
= 25.6 lakhs
(b) Implicit cost = Imputed interest on Own investment of 10 lakh (40-30) @ 12%+ Rental value of the owner's factory building+ Imputed of the management services of the owner
=1.2 +18+24
=43.2 lakhs
Regards
(a) Explicit cost = Interest on borrowings+ Wages paid+ Depreciation
= (30*12%)+ 12+10
= 25.6 lakhs
(b) Implicit cost = Imputed interest on Own investment of 10 lakh (40-30) @ 12%+ Rental value of the owner's factory building+ Imputed of the management services of the owner
=1.2 +18+24
=43.2 lakhs
Regards