Question

Discussion Question 2: Comment on the difficulty of calculating opportunity costs (the economic concept) as compared to accounting costs (explicit costs). Do you have any suggestions for making the calculation of implicit costs easier?

Answer 1

The explicit costs incurred in doing a business is covered in accounting costs and not the implicit costs. The explicit costs such as the wages, transportation, storage costs, utility bils etc which are the direct costs to the company so they have all the valid receipts or the proofs to be shown and it can be easily verified so accounting such costs become easy and quick. These costs needs to be entered and looked into only in the financial statement of the company and nowhere else and it is already incured. The explicit costs are the normal and the regular ones which needs to be on a regular basis so no need of any expertise is required.

The explicit and the implicit both type of costs are covered in the economic costs. While the explicit costs are simple and regular, the implicit costs are not that regular and easy. They do not appear in the financial statement and they cannot be verified or no proper proof will be there for such costs. These costs are the forward looking costs.

Therefore, computing of economic costs is always diffcult when compared to accouting costs as in accounting costs only explicit costs are involved which are regular and have proof of it in the form of receipts etc. While the economic costs are made of explicit and the implicit costs which is time consuming, hidden and the proof of it is not availbale and they are not the regular or normal costs being done. Thus, the difficulty of the economic costs when compared to accounting costs.

Implicit costs can also be made like the explicit costs by having it on regular basis and keeping a record of it. It can be mentioned in the financial statements too have a proof. They can be made tangible, also easy to compute.