-: Cost :-
An amount that has be paid or given up in order to get something is called cost of that goods or service .
In other words , An amount to be paid or given up tor acquiring any resource or service is called cost .
-:Types of Cost:-
On the basis of nature and purpose costs and categories in two types-
1- Costs concepts used for Accounting purpose
2- Analytical costs concepts used tor economic analysis of business activities .
-: 1-Cost concepts for Accounting Purposes :-
Generally , the accountants use these cost concepts to study the financial position of the firm which are -
(i)- Opportunity cost
(ii)- Business cost
(iii)-Full cost
(iv)-Explicit cost
(v)- Implicit cost
(vi)- Out of pocket cost
(vii)- Book cost
(viii)- Actual cost
(i)-Opportunity cost :- To produce a particular good the resources has to be with drawn /sacrificed from the production of other goods then the cost of sacrifice or foregone for the next best use of resource is known as opportunity cost.
(ii)-Business cost:- A cost which includes all the costs ( fixed , variable, direct, indirect ) incurred in carrying out the operations of the business is known as Business cost.
or
The overall cost incurred to carry out the business operations is known as business cost .
( iii )- Full cost :- The total cost incurred in production and is comprised of business cost , opportunity cost and normal profit is known as full cost .
(iv)- Explicit cost :- Those cost , which are paid to the other for their services and goods is known as explicit cost .
(v)- Implicit cost :- Those costs which are paid by an entrepreneur (business man ) to his own resources or factors of production ( own land , own labour , own capital, own building etc.) is known as Implicit cost .
(vi)- Out of pocket cost :- The cost which involves the potential future cash payments or cash transfers both recurring and non-recurring , paid during the current accounting period or during the project is known as out of pocket cost .
(vii)- Book Cost :- Those expenses which do not involve actual cash payments, but rather the provisions are made in the books of accounts to include them in the profit and loss accounts and avail the tax advantages is known as Book cost .
(viii)- Actual cost :- The costs which are actually incurred by the firm in payment for labour , material , plant , building, machinery , equipment etc is known as actual cost.
-: Analytical cost concepts used for economic analysis of business activities :-
These cost concepts are used by the economists to analyze the likely cost of production in the future . These costs are -
(i)- Fixed cost
(ii)- Variable cost
(iii)- Total cost
(iv)- Average cost
(v)- Marginal cost
(vi)- Short run cost
(vii)- Long run cost
(viii)- Incremental cost
(ix)- Sunk cost
(x)- Replacement cost
(xi)- Historical cost
(xii)- Private cost
(xiii)- Social cost
(i)- Fixed Cost:- The cost that remains fixed for a certain volume of output and does not change with the change in the output up to a certain level is known as fixed cost .
Ex- Rent , Interest on loans , insurance etc.
(ii)- Variable Cost:- A cost which varies directly with the level of output is known as variable cost .
Ex- Direct labour, raw materials, etc .
(iii)- Total Cost:- The sum of fixed cost and variable cost is known as total cost .
(iv)- Average Cost :- The ratio of total cost to the total output is known as average cost .
(v)- Marginal cost :- The increase or decrease in the total cost due to the production of one additional unit of the product is known as marginal cost .
(vi)- Short run Cost :- The cost which has short term implication in the production process is known as short run cost . Short run cost can not be used again and the curve tend to be ' U ' shaped .
(vii)- Long run Cost :- The cost having the long term implications in the production process is known as long run cost . These costs are incurred on the fixed factors such as plant, building and machinery etc.
(viii)- Incremental cost :- The additional cost that a company added for producing one additional unit of a product or service is known as Incremental cost .
(ix)- Sunk Cost :- The cost which was incurred in the past and is now permanently lost and can not be recovered is called a Sunk Cost .
(x)- Replacement Cost :- The cash outlay that firm has to pay in to replace an old asset at the current market price, is known as replacement cost .
The replacement cost is used while taking the business decisions of renovating the firm .
(xi)- Historical Cost :- The original cost of an asset , as recorded in an entity's accounting records is known as historical cost.
(xii)- Private Cost :- The cost of production incurring and provided for by an individual firm engaged in the production of a commodity is known as private cost .
Private cost has nothing to do with the society . It includes both explicit as well as implicit cost .
(xiii)- Social cost :- The cost of producing a commodity or services to the society as a whole is known as social cost .
An amount that has be paid or given up in order to get something is called cost of that goods or service .
In other words , An amount to be paid or given up tor acquiring any resource or service is called cost .
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-:Types of Cost:-
On the basis of nature and purpose costs and categories in two types-
1- Costs concepts used for Accounting purpose
2- Analytical costs concepts used tor economic analysis of business activities .
-: 1-Cost concepts for Accounting Purposes :-
Generally , the accountants use these cost concepts to study the financial position of the firm which are -
(i)- Opportunity cost
(ii)- Business cost
(iii)-Full cost
(iv)-Explicit cost
(v)- Implicit cost
(vi)- Out of pocket cost
(vii)- Book cost
(viii)- Actual cost
(i)-Opportunity cost :- To produce a particular good the resources has to be with drawn /sacrificed from the production of other goods then the cost of sacrifice or foregone for the next best use of resource is known as opportunity cost.
(ii)-Business cost:- A cost which includes all the costs ( fixed , variable, direct, indirect ) incurred in carrying out the operations of the business is known as Business cost.
or
The overall cost incurred to carry out the business operations is known as business cost .
( iii )- Full cost :- The total cost incurred in production and is comprised of business cost , opportunity cost and normal profit is known as full cost .
(iv)- Explicit cost :- Those cost , which are paid to the other for their services and goods is known as explicit cost .
(v)- Implicit cost :- Those costs which are paid by an entrepreneur (business man ) to his own resources or factors of production ( own land , own labour , own capital, own building etc.) is known as Implicit cost .
(vi)- Out of pocket cost :- The cost which involves the potential future cash payments or cash transfers both recurring and non-recurring , paid during the current accounting period or during the project is known as out of pocket cost .
(vii)- Book Cost :- Those expenses which do not involve actual cash payments, but rather the provisions are made in the books of accounts to include them in the profit and loss accounts and avail the tax advantages is known as Book cost .
(viii)- Actual cost :- The costs which are actually incurred by the firm in payment for labour , material , plant , building, machinery , equipment etc is known as actual cost.
-: Analytical cost concepts used for economic analysis of business activities :-
These cost concepts are used by the economists to analyze the likely cost of production in the future . These costs are -
(i)- Fixed cost
(ii)- Variable cost
(iii)- Total cost
(iv)- Average cost
(v)- Marginal cost
(vi)- Short run cost
(vii)- Long run cost
(viii)- Incremental cost
(ix)- Sunk cost
(x)- Replacement cost
(xi)- Historical cost
(xii)- Private cost
(xiii)- Social cost
(i)- Fixed Cost:- The cost that remains fixed for a certain volume of output and does not change with the change in the output up to a certain level is known as fixed cost .
Ex- Rent , Interest on loans , insurance etc.
(ii)- Variable Cost:- A cost which varies directly with the level of output is known as variable cost .
Ex- Direct labour, raw materials, etc .
(iii)- Total Cost:- The sum of fixed cost and variable cost is known as total cost .
(iv)- Average Cost :- The ratio of total cost to the total output is known as average cost .
(v)- Marginal cost :- The increase or decrease in the total cost due to the production of one additional unit of the product is known as marginal cost .
(vi)- Short run Cost :- The cost which has short term implication in the production process is known as short run cost . Short run cost can not be used again and the curve tend to be ' U ' shaped .
(vii)- Long run Cost :- The cost having the long term implications in the production process is known as long run cost . These costs are incurred on the fixed factors such as plant, building and machinery etc.
(viii)- Incremental cost :- The additional cost that a company added for producing one additional unit of a product or service is known as Incremental cost .
(ix)- Sunk Cost :- The cost which was incurred in the past and is now permanently lost and can not be recovered is called a Sunk Cost .
(x)- Replacement Cost :- The cash outlay that firm has to pay in to replace an old asset at the current market price, is known as replacement cost .
The replacement cost is used while taking the business decisions of renovating the firm .
(xi)- Historical Cost :- The original cost of an asset , as recorded in an entity's accounting records is known as historical cost.
(xii)- Private Cost :- The cost of production incurring and provided for by an individual firm engaged in the production of a commodity is known as private cost .
Private cost has nothing to do with the society . It includes both explicit as well as implicit cost .
(xiii)- Social cost :- The cost of producing a commodity or services to the society as a whole is known as social cost .
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