Question

Assume you decide to start a business and you quit your job that was paying you $60,000. You pay $36,000 to the landlord for the facility you are renting for your new business. You pay your vendor $35,000 for raw materials you purchased for the business. You no longer earn $1,000 of interest on the funds you took out of the bank to start the business. You pay $24,000 during the year for utilities. You sell 22,000 of your items for $10. What is your explicit costs?

Answer 1

Answer:

Explicit cost = $95,000

Explanation:

Explicit cost = the cost which is actually incurred and paid in cash, it does not include any opportunity cost foregone, as no direct cash payment is involved in that case.

Here explicit cost of business = Rent paid + Raw material purchased + Utilities

= $36,000 + $35,000 + $24,000 = $95,000

Note: Explicit cost does not consider the revenue generated as this is only the cash paid for expenses.

Explicit cost = $95,000