I am doing an assignment where I am starting up a Food Van where I sell burgers. What would be some implicit costs? Also, what would be some variable costs?
Thanks.
Implicit costs refer to the opportunity costs of resources that are not reflected in accounting records. In the context of starting a food van and selling burgers, here are some examples of implicit costs:
1. Entrepreneurial Labor: If you, as the owner of the food van, choose to work in it yourself, the implicit cost would be the forgone wages or salary that you could have earned if you worked for someone else instead.
2. Investment of Personal Savings: If you invest your own money into the food van, the implicit cost would be the foregone interest or returns that you could have earned by investing that money elsewhere.
3. Use of Personal Assets: If you use personal assets like a vehicle or kitchen equipment for the food van, the implicit cost would be the rental value or depreciation of those assets that you are foregoing.
Variable costs, on the other hand, are costs that vary in direct proportion to the level of production or sales. In the case of a food van selling burgers, some examples of variable costs include:
1. Ingredients: The cost of purchasing ingredients like meat, buns, vegetables, condiments, and other toppings for the burgers would be a variable cost, as it increases or decreases with the number of burgers produced and sold.
2. Packaging and Supplies: The cost of packaging materials, such as burger wrappers, napkins, containers, plastic bags, and other necessary supplies, would also be a variable cost.
3. Utilities: The cost of utilities, such as gas, electricity, and water, required for cooking and operating the food van, would vary depending on the level of production and sales.
To determine these costs accurately, you would need to keep track of your expenses and carefully categorize them as implicit costs or variable costs based on their nature and how they change with your business activities.