A company's expenditure on raw materials is regarded as?
Answer Details
A company's expenditure on raw materials is regarded as an explicit cost.
An explicit cost is a direct, out-of-pocket expense that a company incurs as a result of carrying out its operations. It is a cost that is easily quantifiable and directly related to the production of goods or services. Raw materials are a direct input into the production process, and their cost is directly reflected in the company's financial statements.
In contrast, an implicit cost represents the opportunity cost of using resources for one purpose instead of their next best alternative use. These costs are not directly recorded in the financial statements, but they still have an impact on the company's financial performance.
Prime cost refers to the total cost of the direct inputs into the production process, such as raw materials and direct labor.
Average cost, on the other hand, is the total cost of production divided by the number of units produced. It provides an average measure of the cost per unit of production.