Which of the following would NOT be considered an explicit cost for a company?

• A. The opportunity cost of the owner's time
• B. Payments for raw materials
• C. Wages paid to employees
• D. Interest paid on bank loans

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the difference between explicit and implicit costs. Explicit costs are direct, out-of-pocket payments a firm makes to others in the course of running a business, such as wages, rent, and materials. Implicit costs, on the other hand, represent the opportunity costs of using resources owned by the firm, like the owner's time or capital.
2. Step 2: Identify the nature of each option given. Payments for raw materials, wages paid to employees, and interest paid on bank loans are all direct payments made to external parties, so these are explicit costs.
3. Step 3: Analyze the option 'The opportunity cost of the owner's time.' This cost does not involve a direct payment but represents the value of the owner's time that could have been used elsewhere. This is an implicit cost because it is an opportunity cost rather than a direct monetary payment.
4. Step 4: Conclude that the option which is NOT an explicit cost is the opportunity cost of the owner's time, as it is an implicit cost and does not involve a direct cash outflow.
5. Step 5: Summarize that explicit costs are recorded in accounting books as actual expenses, while implicit costs are not recorded but are important for economic profit calculations.