Although implicit costs do not require financial expenditure, it is a cost of production. If the factors of production were not used to produce a particular good, they could be used for other productive activities, thereby generating additional income for the firm. Put simply imputed costs are the opportunity costs that the firm gives up when using its resources. For instance, if a company uses its own buildings for production, it loses the income from renting it or selling to a third party. As this is not a financial expenditure, the firm does not report it on its financial statements.
In a nutshell :
- Imputed costs are those incurred when using an asset as opposed to investing it or the costs arising from following one particular action and foregoing another.
- Imputed costs are hidden costs as they are not explicit and, therefore, do not appear on financial statements. This means that there is no cash outlay for an imputed cost. An imputed cost is also known as an "implicit cost", an "implied cost", or an "opportunity cost."