Question

The most important implicit cost generally omitted from the accounting statement of a firm is the ____________.a. cost of compliance with government regulations. b. opportunity cost of the equity capital invested by the owners. c. accounting cost incurred as the result of tax compliance.d. rental cost of machinery.

Answer 1

Answer:

The correct answer is letter "B": opportunity cost of the equity capital invested by the owners.

Explanation:

In Accounting, explicit costs are those incurred as a result of the operation of the companies. Raw materials, direct labor, overhead or rent are examples of explicit costs. Implicit costs represent the opportunity costs of the firm over forgone decisions or decisions not taken at all like avoiding hiring more employees.

The economic profit of a firm includes both explicit and implicit costs. The accounting profit of a company includes only the explicit costs, thus, the opportunity costs of the equity capital of investors are not taken into consideration.