ACC541 Week 5 DQ Implicit Costs

ACC541 Week 5 DQ Implicit Costs - earned renting the...

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An econcomic profit or loss is the amount of profit or loss as a result of the implict costs of giving up the next best alternative use of a resource used in producing goods or services. Implicit costs are hard to measure but are estimated by management of companies to help make useful economic decisions. An example that leads to economic profit or loss is the opportunity cost of producing a good or service. Opportunity costs are higher than accounting costs because they include both explicit costs (easy to measure) and implicit costs (hard to measure). Further explained, a company that uses its own building for the production of goods or services forgoes an esitmated $150,000 income that it may have
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Unformatted text preview: earned renting the building. This implicit cost is not recognizable for accounting purposes but is useful for managers in determining how well the company is using capital to enhance profitability. Revenue $400,000 Less Expenses (explicit costs) - $300,000 Profit $100,000 Less Opportunity Cost (implicit cost) - $150,000 Economic (Loss) -$50,000 The opportunity cost of renting building led to an economic loss (despite an accounting profit) that is not recognizable for accounting purposes. Lloyd W W Bell, I. (n.d). Economic profit: An old concept gains new significance. The Journal of Business Strategy , 19 (5), 13. Retrieved from ProQuest: ABI/INFORM Complete database....
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This note was uploaded on 07/15/2011 for the course ACC 541 taught by Professor Chrismoody during the Spring '11 term at University of Phoenix.

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ACC541 Week 5 DQ Implicit Costs - earned renting the...

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