Discuss the factors that determine the total cost of of business trip.

Suppose that you manage a business and have to make a business trip of two or four days at least once in a month. Discuss the factors that determine the total cost of the help.

Ans. Factors to determine the total cost of the business trip is the sum of both explicit cost of implicit cost. It means Total Cost +Implicit Cost.

(1) Explicit Cost:- Explicit cost are those cost that involve an actual payment to other parties. In other word explicit cost is the monitory payment made by a firm for the use of an input owned or controlled by others.

In the words of lift witch, “ explicit cost are those cash payments which firms make to outsiders for their services and goods.”

Examples of explicit cost of business trip:-

1. Transportation cost
2. Business Expenses
3. Cost of raw material
4. Salaries of Workers
5. Purchasing of business equipment.
6. Rent of business premises
7. Interest of an takes for business

All these expenses are called explicit cost. Which are paid to others for the use of their resources and services.

(II) Implicit Cost :- Implicit cost represent the value of forgone opportunities but do not involve an actual cash payment. Implicit cost are just as important as explicit cost but are sometimes neglected because they are not as obvious.

In other word implicit cost are the cost of an entrepreneur’s own factors or resources. These arise when a firm makes use of its own resources.

The examples of implicit cost is

1. Own land on which business settled
2. Own building for business purposes.
3. Own capital applied for running their business
4. Salary payed to owner manager
5. Interest on owners equity etc.

All these expenses are called implicit cost, which arises when a firm makes use of its own resources. According to left witch

“Implicit cost are costs of self-employed resources”.

So it means: Total Cost = Explicit Cost + Implicit Cost

So, Combinations of all explicit expenditure and implicit expenditure firm can determine the total cost of the trips.