Explicit costs are those that involve outlay of cash such as wages and materials.

• A. Costs that involve no cash outlay
• B. Costs that involve outlay of cash like wages and materials
• C. Costs that are sunk and non-cash
• D. Costs that do not involve cash outlay

Answer: (B)

Explicit costs are out-of-pocket payments that require cash. Wages and materials fit this because you actually pay workers and suppliers, and these cash outlays show up as expenses that reduce accounting profit. Costs that don’t involve cash outlay—such as using your own building or owner’s time, or non-cash charges like depreciation—are implicit costs or non-cash expenses, not explicit costs. In short, explicit costs are the cash-transactions side of costs, while implicit costs represent opportunity costs that don’t involve an immediate cash payment.