Golda Rush quit her job as a manager for Home Depot to start her own hair dressing salon, Goldilocks.She gave up a salary of $40,000 per year, invested her savings of $30,000 (which was earning 5 percent interest)and borrowed $10,000 from a close friend, agreeing to pay 5 percent interest per year.In her first year, Golda spent $18,000 to rent a salon, hired a part-time assistant for $12,000 and incurred another $15,000 in expenses on equipment and hairdressing material.Based on this information, what is the amount of her explicit costs?

Question

Quizplus · Accepted Answer

Explicit costs are the out-of-pocket expenses incurred by the firm, which includes salaries, rent, material costs, etc. In this case, Golda's explicit costs can be calculated as:
Salary foregone = $40,000
Rental expense = $18,000
Salary paid to part-time assistant = $12,000
Equipment and material costs = $15,000
Interest paid to friend = $500 (5% of $10,000)
Total explicit costs = $40,000 + $18,000 + $12,000 + $15,000 + $500 = $45,500
Therefore, the best choice is B.

Golda Rush Quit Her Job as a Manager for Home