Jennilyn Jasper, whose annual salary as a flight instructor is $40,000, has just inherited $100,000 after taxes. She is considering quitting her job and opening a day-care center. Certificates of deposit at the local bank are currently paying 6%. Jennilyn estimates that she will have to pay $120,000 in salaries to employees per year, $20,000 to rent a building, $9,000 each for furniture and supplies, $80,000 for insurance, and $7,000 for utilities.
The two most important cost figures Jennilyn must consider in projecting profitability for her day-care center are, respectively, the explicit and implicit costs of

Answer (A) is correct. Explicit costs are those requiring actual cash disbursements. For this reason, they are sometimes called out-of-pocket or outlay costs. In Jennilyn’s case, they total $245,000 ($120,000 salaries + $20,000 rent + $9,000 furniture + $9,000 supplies + 80,000 insurance + $7,000 utilities). Implicit costs are those costs not recognized in a concern’s formal accounting records. Implicit costs are opportunity costs, i.e., the maximum benefit forgone by using a scarce resource for a given purpose and not for the next-best alternative. For Jennilyn, these consist of the salary forgone by quitting her job ($40,000) plus the the interest she could have earned by simply investing the inheritance instead of plowing it into the business ($100,000 × 6% = 6,000 )