Question

What constitutes an implicit cost to the johnston manufacturing company?

Answer 1

Answer:

Interest on self funded capital , Self imputed salary of entrepreneur

Explanation:

Implicit Cost is the cost of business, which includes the imputed value of self owned factor services. No cash monetary exchange takes place for such costs, unlikely Explicit Costs (for which money factor payment is done). The implicit costs include the opportunity cost of all the factor services. It implies the cost of next best alternative of the factor services.

Examples

• Interest on self funded capital , as it could have opportunity cost in terms of interest otherwise
• Self entrepreneurial, managerial salary ; that reflects the opportunity cost in terms of salary that could be earned otherwise (skills employed somewhere else)