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Explicit costs are also known as (direct/opportunity) costs. (Choose an option from the ones given within parenthesis.)

Question

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Solution

Explicit costs are also known as direct costs.

Explanation

Explicit costs refer to the direct, out-of-pocket expenses that a business incurs when conducting its operations. These include costs such as wages, rent, utilities, and materials. They are typically easy to identify and quantify because they involve actual cash payments. In contrast, opportunity costs represent the potential benefits that one misses out on by choosing one option over another, which are not directly involved in cash transactions. Therefore, when considering the nature of explicit costs, the term "direct costs" is more appropriate, as it highlights the tangible expenses that impact a company's financial statements directly.

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