What is Imputed cost?

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Definition

Imputed Cost—is the cost allocated for resources or use of a service which does not involve a cash outlay. They are hypothetical costs and are not recorded in the books of accounts.

There are those costs which do not involve cash outlay. These are not included in the cost accounts. But they are important and management gives greater importance to such costs. Interest on capital is such a cost which does not find a place in cost computation but which is the most important consideration from every angle which is certainly helpful in judging the relative profitability of the projects. These costs are also known as Hypothetical overheads.

Explanation

Imputed cost is used in a narrower context (as compared to the concept of opportunity cost) and generally relates to the interval events of the organization. Examples of imputed cost include interest on owners equity, rent of building owned by the firm etc. However, in some cases, the concept of opportunity cost and imputed cost may be used interchangeably.

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