Explicit cost is defined as the direct payment which is supposed to be made to others during the due course of running business. This includes the wages, rents or materials which are due in the contract.
Representation of explicit cost
The explicit cost can be explained and represented rightly as the expense done in business which can easily be identified and accounted for in the business at any stage. The explicit cost clearly explains and represents the out flows of cash in clear and obvious terms. When any out flow of credit occurs in a business, it should be identified and should be accounted for immediately. This is all meant about working of the explicit cost.
Element of profitability in explicit cost
Basically the explicit cost is defined as the business expanse which is recorded with the passage of time. When cash starts out flowing form any business, it can cause the profit generation to the bottom line of a business. As a result of this, the direct contrast affects the expanses and the less tangible expanses are curtailed at once. This is important to do because only in this way the business can be stabilized and it is therefore regarded as a goodwill gesture in saving one’s business.
Examples of explicit cost
There are many good examples of practicing of explicit cost. Many companies and businesses when face a time of regression or economic recession, they consider it a must to apply the explicit cost strategies. Some good and practicable strategies of explicit cost exercise include the rent and lease costs, wage expanses, reduction in the cost of material and many other such practices which are generally recommended by the economy specialist in the companies and organizations. Looking after these expanses will allow the officials to get new sources of cash and new business activities can then be initiated.Explicit costs can be thought of working as opposite to the implicit costs. This is the situation when no actual payment is required to be made. Certain costs can be underestimated as well in this strategy and this must be taken into account especially when cost of labor is considered.