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Week 3 Discussion Questions

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WEEK 3 DISCUSSION QUESTIONS • What is the difference between accounting costs and economic costs? Accounting costs also referred to as hard cost are the explicit costs incurred in conducting a business and not the implicit costs. Such costs include direct costs like employee wages, utility bills, cost of premises, storage as well as transportation costs among others. In other words, these costs include those in manufacturing, marketing and delivering products. Accounting costs can be objectively verified from available receipts. They have a monetary value and can be identified easily on a bookkeeper’s ledger. These costs are deducted from revenues in any given accounting period. Economic costs on the other hand involves both the explicit and implicit costs. Implicit costs in this case are opportunity costs in terms of revenues lost when one forgoes the best alternative for example, renting spaces rather than conducting business in that space. Such costs don’t appear on financial statements hence can only be reffered to as forward looking as they include what if scenario. Economic costs are assumed by the business to utilize resources. • Why do economic costs include both explicit (revealed and expressed) costs and implicit (present but not obvious) costs? Economic costs include both explicit and implicit costs because they are both valuable to a business. The explicit and implicit cots help determine long-term strategies for the business. They provide a high-l ...
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