Cost

Cost is a term in economics and business that refers to the value of money that has been used up to produce something, and hence is not available for use anymore. In business, the cost may be one of acquisition, in which case the amount of money expended to acquire it is counted as cost. In this sense, money itself can be spent on a good or service and used up in the process. In the case of a service, the price of the service is the cost. In other cases, cost refers to a monetary measure of the economic resources used or the liabilities incurred to achieve a particular objective.

Types of Costs

There are several types of costs that a firm may consider:

• Fixed cost: This is a cost that does not change with an increase or decrease in the amount of goods or services produced or sold.

• Variable cost: This is a cost that varies with the level of output.

• Total cost: This is the total cost of production and consists of fixed costs and variable costs.

• Direct cost: These are costs that relate directly to the product or service.

• Indirect cost: These are costs that are not directly accountable to a cost object (such as a particular project, facility, function or product).

• Opportunity cost: This is the cost of the next-best choice available to someone who has picked among several mutually exclusive choices.

• Sunk cost: This is a cost that has already been incurred and cannot be recovered.

Cost in Different Fields

Cost is a key concept in fields like economics, business, and accounting. In each of these fields, the understanding and application of cost can vary.

• Cost in economics: In economics, cost is the sum of the opportunity costs of each resource used in the production of goods and services.

• Cost in business: In business, cost is usually a monetary valuation of effort, material, resources, time and utilities consumed, risks incurred, and opportunity forgone in production and delivery of a good or service.

• Cost in accounting: In accounting, cost refers to the monetary value of expenditures for supplies, services, labor, products, equipment and other items purchased for use by a business or other accounting entity.

See Also

• Cost accounting
• Cost analysis
• Cost control
• Cost management
• Cost reduction
• Cost-benefit analysis

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