Implicit Cost

AAA

DEFINITION of 'Implicit Cost'

A cost that is represented by lost opportunity in the use of a company's own resources, excluding cash. The implicit cost for a firm can be thought of as the opportunity cost related to undertaking a certain project or decision, such as the loss of interest income on funds, or depreciation of machinery used for a capital project.

INVESTOPEDIA EXPLAINS 'Implicit Cost'

Implicit costs can also be thought of as intangible costs that are not easily accounted for. For example, the time and effort that an owner puts into the maintenance of the company, rather than working on expansion, can be viewed as an implicit cost of running the business. In corporate finance decisions, implicit costs should always be considered when coming to a decision on how to allocate resources.

VIDEO

Loading the player...
RELATED TERMS
  1. Absorbed Cost

    The indirect costs that are associated with manufacturing. Absorbed ...
  2. Explicit Cost

    A business expense that is easily identified and accounted for. ...
  3. Variable Cost

    A corporate expense that varies with production output. Variable ...
  4. Intangible Asset

    An asset that is not physical in nature. Corporate intellectual ...
  5. Opportunity Cost

    1. The cost of an alternative that must be forgone in order to ...
  6. Tangible Asset

    Assets that have a physical form. Tangible assets include both ...
RELATED FAQS
  1. Which is more important to economists, the marginal propensity to consume or the ...

    Economic profit is a measure of a company's performance found by calculating the amount it generates in revenues. Use Microsoft ... Read Full Answer >>
  2. What is the relationship between research and development and innovation?

    Although it's possible to achieve innovation without research and development and it's possible to conduct research and development ... Read Full Answer >>
  3. How is minimum transfer price calculated?

    A company that transfers goods between multiple divisions needs to establish a transfer price so that each division can track ... Read Full Answer >>
  4. How does neoclassical economics relate to neoliberalism?

    While it may be likely that many neoliberal thinkers endorse the use of (or even emphasize) neoclassical economics, the two ... Read Full Answer >>
  5. What are common concepts and techniques of managerial accounting?

    The common concepts and techniques of managerial accounting are all the concepts and techniques that surround planning and ... Read Full Answer >>
  6. How is abatement cost accounted for on financial statements?

    Abatement costs are accounted for on a company's financial statements through increases in either cost of goods sold or operational ... Read Full Answer >>
Related Articles
  1. Economics

    Understanding Implicit Costs

    An implicit cost is any cost associated with not taking a certain action.
  2. Investing Basics

    Reading The Balance Sheet

    Learn about the components of the statement of financial position and how they relate to each other.
  3. Markets

    Intangible Assets Provide Real Value To Stocks

    Intangible assets don't appear on balance sheets, but they're crucial to judging a company's value.
  4. Economics

    Calculating Income Elasticity of Demand

    Income elasticity of demand is a measure of how consumer demand changes when income changes.
  5. Economics

    Understanding Diseconomies of Scale

    Diseconomies of scale is the point where a business no longer experiences decreasing costs per unit of output.
  6. Economics

    What Does Capital Intensive Mean?

    Capital intensive refers to a business or industry that requires a substantial amount of money or financial resources to engage in its specific business.
  7. Economics

    What is an Original Equipment Manufacturer (OEM)?

    An OEM is a company whose products are used as components in another company's product.
  8. Economics

    Good Economic News The Cynics May Be Missing

    Headline data about the U.S. economy hasn’t been great, but the economy is actually stronger than it’s getting credit for.
  9. Fundamental Analysis

    How Does Sampling Work?

    Sampling is a term used in statistics that describes methods of selecting a pre-defined representative number of data from a larger data population.
  10. Economics

    Explaining Limited Government

    Limited government is a political viewpoint that favors few, if any, government controls on individuals and the economy.

You May Also Like

Hot Definitions
  1. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
  2. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  3. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
  4. Quantitative Easing

    An unconventional monetary policy in which a central bank purchases private sector financial assets in order to lower interest ...
  5. Current Account Deficit

    A measurement of a country’s trade in which the value of goods and services it imports exceeds the value of goods and services ...
  6. International Monetary Fund - IMF

    An international organization created for the purpose of: 1. Promoting global monetary and exchange stability. 2. Facilitating ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!