What is Imputed Cost?

Imputed cost is the cost incurred during the period when an asset is employed for a particular use, rather than redirecting the asset to a different use. This amount is the incremental difference between the two options. Imputed costs are not recorded in an organization’s accounting records, nor are they reported in its financial statements.

Examples of Imputed Cost

Here are several examples of imputed cost:

Training time. A teacher decides to go back to school to earn a master's degree. During the period when she is at school, the imputed cost of this decision is the wages she would otherwise have earned if she had continued to work as a teacher.
Owner’s time. A business owner dedicates his time to running a business instead of working elsewhere. In this case, the salary he could have earned is considered an imputed cost. For example, if the owner spends 40 hours per week running a business, he is forgoing potential income that he could earn from a different job.

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FAQs

How is an Imputed Cost Different From an Explicit Cost?

An imputed cost is a non-cash, hypothetical cost representing the value of resources used where no actual payment is made, such as the owner’s time or use of owned assets. An explicit cost, on the other hand, involves a direct monetary payment, like wages, rent, or utilities. While explicit costs are recorded in financial statements, imputed costs are used only for internal decision-making and economic analysis.