Task: Attempt ALL questions (Show all calculations /working formula) Question 1:

Question

Task: Attempt ALL questions (Show all calculations /working formula) Question 1: Suppose a company IT Logistics incurs the following costs: IT Technician salary OMR 400 Machinery & electrical equipment OMR 300 Raw materials OMR 100 The company owns the building site so it does not have to pay the usual OMR 500 per month in rent. Calculate: (1) What is the explicit cost of production? (ii) What is the implicit cost of production? (ii) What is the total cost of factor inputs used? (iv) What is the total cost of non-factor inputs used? (04 marks)

Explanation / Answer

(i) Explicit Cost of Production: Machinery & Electrical Equipment +Raw Materials + IT Technican Salary

= 300 OMR +100 OMR + 400 OMR

= 800 OMR

(ii)  Implicit Cost of Production: Rent of Building

=500 OMR per month

(iii) Total cost of Factor Inputs Used: Raw material used in production

= OMR 100

(iv) Total cost of non- Factor Inputs Used: Machinery & Electrical Equipment + IT Technican Salary

= 300OMR +400 OMR

= 700

Explanation:

Explicit and Implicit Cost of Production: Explicit cost is called as teh outlay cost and refers to any payment made to an outsider and this is also reflected in a company’s book of account. Again  implicit cost is opportunity cost and is not taken into consideration by the accountant.

Cost of Factor Inputs and non- Factor inputs: The  Primary inputs i.e. the resources on the basis of which production is undertaken are called factor inputs. Again secondary inputs i.e all invisible receipts and payments which are not directly attruibutable to production is known as non factor inputs.

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