Final answer:
The use of explicit costing may result in the exclusion of some segment costs from product costing because it does not include nonmanufacturing costs. Both explicit costs and implicit costs must be considered for a full understanding of a firm's costs. These insights are valuable for accurate financial analysis and decision-making.
Step-by-step explanation:
The use of explicit costing can lead to the omission of segment costs because nonmanufacturing costs are not included as costs of a product. Explicit costs refer to the out-of-pocket costs for a business—the actual payments made. Examples include wages paid to employees and rent for office space.
However, there are also implicit costs to consider, which are no less important. Implicit costs represent the opportunity costs of using resources that the firm already owns. This might be the lost income when a business owner works in the business without taking a formal salary, or the use of a part of one's home as a store. Depreciation of goods, materials, and equipment necessary for company operations are also implicit costs.
Understanding these types of costs is crucial for businesses to accurately measure and understand their total costs of production. Each type of cost—fixed, marginal, average total, and average variable—provides different insights, which are critical when making business decisions or assessing the cost structure of different products.