Question

The following is cost information for the Creamy Crisp Donut Company:Entrepreneur’s potential earnings as a salaried worker = $50,000Annual lease on building = $22,000Annual revenue from operations = $380,000Payments to workers = $120,000Utilities (electricity, water, disposal) costs = $8,000Value of entrepreneur’s talent in the next best entrepreneurial activity = $80,000Entrepreneur’s forgone interest on personal funds used to finance the business = $6,000Refer to the data. Creamy Crisp’s explicit costs are:_____________.

Answer 1

Answer:

Explicit costs is $150,000

Explanation:

The task is to compute total explicit costs in the year which is also the accounting profits:

Annual lease on building   $22,000

Payment to workers           $120,000

Utilities                                 $8000

Total explicit costs              $150,000

The following costs are not included because they are implicit costs:

Entrepreneur's potential earnings as a salaried worker $50,000

Value of entrepreneur’s talent in the next best entrepreneurial activity $80,000

Entrepreneur’s forgone interest on personal funds used to finance the business  $6,000

Implicit costs are cash from an opportunity cost perspective,which are the benefits forgone because the entrepreneur chose to run a business rather than engage in something else.