Cost Accounting and Economic Costs Quiz

Economic costs are the combination of explicit costs (accounting costs) and implicit costs. Implicit costs are the opportunity costs of using resources for a particular purpose instead of their next best alternative. It includes the value of the resources used even if no direct payment is made.

Accounting costs are explicit costs, also referred to as hard costs, that include business necessities like payroll, production costs, and marketing budgets. These costs are easily trackable and include specific dollar amounts.

Accounting costs are deducted from revenues in an accounting period to determine the net income or profit.

The difference lies in the inclusion of implicit costs. Accounting costs only include explicit, trackable costs, while economic costs include both explicit and implicit costs.

Understanding these differences can help in determining the total economic profitability of a business and in making strategic decisions regarding resource allocation and cost management.