Saturday, January 15, 2011

Imputed Cost Performance Evaluation

An imputed cost is a cost which does not involve actual cash outlay by a company. Imputed cost is considered a hypothetical cost from the point of view of financial accounting. Calculating imputed costs are generally used only for the purpose of decision making and performance evaluation.

For example, interest on capital is common type of imputed cost. This is because an actual payment of interest is made, but the basic concept is that the funds could have been invested elsewhere to earn interest.

Thus, imputed costs are a type of opportunity costs.

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