Question

Many corporations allow CEOs to use their​ firm's corporate jet for personal travel. The Internal Revenue Service​ (IRS) requires that the firm report personal use of its corporate jet as taxable executive​ income, and the Securities and Exchange Commission​ (SEC) requires that publicly traded corporations report the value of this benefit to shareholders. A firm may use any of three valuation techniques. The IRS values a​ CEO's personal flight at or below the price of a​ first-class ticket. The SEC values the flight at the​ "incremental" cost of the​ flight: the additional costs to the corporation of the flight. The third alternative is the market value of chartering an aircraft. Of the three​ methods, the​ first-class ticket is least expensive and the chartered flight is most expensive. What factors​ (such as​ fuel) determine the marginal explicit cost to a corporation of an​ executive's personal​ flight? Explicit costs to a corporation of an​ executive's personal flight include.

Answer 1

The explicit cost of flight includes cost of fuel, maintenance cost, payment to pilot.

Step-by-step explanation:

The explicit costs are the direct costs incurred during the process of production or business. Here, the payments made to the pilot will be a variable cost, the cost of fuel, etc will be explicit cost.

The marginal explicit cost is the increase in the explicit cost with an additional output. The incremental cost of flight correctly determines the marginal explicit cost.

Opportunity cost is the cost of sacrificing the alternative. Here, the marginal opportunity cost will be the revenue that the firm would have earned by renting the flight to other firms or individuals.