Define the following term with examples

1. 1- Sunk cost
2. 2- Implicit cost
3. 3- Explicit cost
4. 4- Opportunity cost
5. 5- Historic cost

Answer: Suggest Edit

Sunk cost

Sunk cost refers to the cost that has been spent in the past and that cannot be retrieved on product or service in the current period. This cost should not be taken into account while making the decisions by management.
Example
Stationary bought in bulk last month. In this case the cost has been incurred and will not be important to management decisions being made for the future.

Implicit cost

Implicit cost is the cost imposed on a firm for foregoing an alternative but where the actual payment for the alternative taken is not involved
Example:

1. Use of company's capital for investment
2. Use of the owner's time
3. Use of the owner's land for investment

Explicit cost

This is subject to actual payment or will be paid in the future.
Example:

1. Actual payment made to buy land for expansion of the company instead of using the owner's land.
2. Payment made for wage, rent or material etc.

Opportunity cost

Opportunity cost is the cost of sacrificing a benefit by choosing some other alternative. This is the cost of foregoing an alternative in favour of some other alternative.
Example

1. If the owner of a company further invests money in his business instead of keeping it in the bank in a savings account then the opportunity cost in this case will be the yearly interest that the bank would have paid to him had he chosen the alternative of keeping the money in the savings account. The investment made in the business should give him more return than the opportunity cost if it is to be deemed a better investment.

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Answer: Suggest Edit

Sunk cost

Sunk cost refers to the cost that has been spent in the past and that cannot be retrieved on product or service in the current period. This cost should not be taken into account while making the decisions by management.
Example
Stationary bought in bulk last month. In this case the cost has been incurred and will not be important to management decisions being made for the future.

Implicit cost

Implicit cost is the cost imposed on a firm for foregoing an alternative but where the actual payment for the alternative taken is not involved
Example:

1. Use of company's capital for investment
2. Use of the owner's time
3. Use of the owner's land for investment

Explicit cost

This is subject to actual payment or will be paid in the future.
Example:

1. Actual payment made to buy land for expansion of the company instead of using the owner's land.
2. Payment made for wage, rent or material etc.

Opportunity cost

Opportunity cost is the cost of sacrificing a benefit by choosing some other alternative. This is the cost of foregoing an alternative in favour of some other alternative.
Example

1. If the owner of a company further invests money in his business instead of keeping it in the bank in a savings account then the opportunity cost in this case will be the yearly interest that the bank would have paid to him had he chosen the alternative of keeping the money in the savings account. The investment made in the business should give him more return than the opportunity cost if it is to be deemed a better investment.

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