Business
Cost
Cost refers to the expenditure incurred in the production of goods or services. It encompasses various expenses such as raw materials, labor, and overhead. Understanding and managing costs is crucial for businesses to ensure profitability and efficiency in operations. By analyzing and controlling costs, businesses can optimize their resources and improve their financial performance.
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7 Key excerpts on "Cost"
eBook - PDFStrategic Managerial Accounting
Hospitality, Tourism & Events Applications
- Tracy Jones, Helen Atkinson, Angela Lorenz, Peter Harris(Authors)
- 2012(Publication Date)
- Goodfellow Publishers(Publisher)
3 Costs and their Behaviour 3.1 Introduction and objectives Managers need to be able to understand Costs and how Costs behave to be able to appreciate the consequences of their decisions. They need to be able to make informed decisions and choose between various alternative courses of action. The term ‘Cost’ can be defined as the monetary value of the resources used, or consumed, in the process of manufacturing a product or serving a customer. There are so many different Costs incurred in business, so many different situations where Costs need to be understood, and so many different ways of analysing them, that it can be quite confusing. As a result the term Cost is nearly always preceded by another word which helps clarify its meaning, such as variable Cost or opportunity Cost, each of these Costs carry different meaning and are used in different circumstances. After studying this chapter you should be able to: Understand a range of Cost concepts that underpin decision-making Identify the elements of Cost and the main ways of classifying Costs Understand what is meant by direct/indirect; variable/fixed Costs Be able to apply these Cost concepts Understand the implications of different Cost structures. This chapter will provide the underpinning for later chapters covering Cost volume profit analysis, decision making, pricing and budget preparation so is an important starting point. 29 3 Costs and their Behaviour 3.2 Classifying Costs It is important to recognise that there are different ways of classifying Costs, Figure 3.1 provides a summary of the main ways of classifying Costs, and these will be explained and discussed in more depth throughout this chapter.
eBook - PDFPushing the Numbers in Marketing
A Real-World Guide to Essential Financial Analysis
- David L. Rados(Author)
- 1992(Publication Date)
- Praeger(Publisher)
Chapter 3 What Every Marketer Needs to Know About Costs Cost means sacrifice. The Cost of anything is what must be sacrificed to attain it. If there is no sacrifice, there is no Cost. It is enormously convenient to measure Cost in monetary units, but it is not necessary. Cost has nothing to do with money. To a small boy with fifty cents to spend on a sweet, the Cost of a candy bar is not fifty cents but the package of chocolate covered raisins he can not have. To my wife, the Cost of a trip to Australia is not thousands of dollars but a long delay in redoing the kitchen. In addition, many sacrifices are difficult to value in dollars—such as the sacrifice of time, leisure, peace of mind, even life itself. Other than in discussions of the fundamental nature of Cost, the word Cost by itself means nothing. We soon encounter deferred Cost, expired Cost, lost Cost, utilized Cost, product Costs and period Costs, direct Costs and indirect Costs, accounting Costs, sunk Costs, avoidable Costs, oppor- tunity Costs, marginal Costs, programmed Costs, separable Costs, attribut- able Costs, traceable Costs, historical Costs—but never just Cost. One can not hope to apply economic Cost concepts without recognizing that there are many kinds of Cost. The word should therefore always be accompanied by a modifier. Students particularly should train themselves never to say "Cost" without a modifier. It is a simple way to begin. This chapter divides into two parts. Thefirstdeals with Costs as seen by the manager and the accountant—variable, fixed, and programmed Costs. In this section we talk the language of business. The second deals with Costs as microeconomists think about them—marginal, sunk, and oppor- tunity Costs. The language here may look a bit strange but the ideas are important. VARIABLE CostS These are Costs that vary in proportion to small changes in activity. When variable Costs are being discussed, they usually refer to Costs that
eBook - ePubManagement and Cost Accounting
Tools and Concepts in a Central European Context
- Andreas Taschner, Michel Charifzadeh(Authors)
- 2020(Publication Date)
- Wiley-VCH(Publisher)
Indirect Costs Indirect Costs are related to the particular Cost object but cannot be traced to it in an economically feasible way.Marginal CostThe additional Costs incurred when producing one additional unit of output.Opportunity CostThe foregone benefit of the best possible alternative use of a resource.Outlay CostA Cost item that leads to a corresponding cash payment.PaymentAny decrease of liquid funds (cash outflow) of the company.Period CostCost items that are treated as an expense in the period they occur.Predicted CostsThe expected future Cost that is assumed to be mainly beyond the company's influence.ProceedAny increase in monetary assets of the company (cash plus receivables minus obligations).Product CostThe Cost of producing outputs. When output is sold, product Cost determines the Cost of sales. When the output is put in stock, product Costs are used to determine inventory values.ReceiptAny increase of liquid funds (cash inflow) of the company.RevenueAny increase in economic benefits that is due to regular company operations and therefore leads to an increase in required assets.Standard CostThe intended future Cost level that is achievable under efficient operating conditions.Step-fixed CostA Cost item that remains constant within a certain activity range and increases to a next-higher level, if the activity level increases beyond that activity range.Sunk CostCost that has already been incurred and that cannot be changed by any future decision.Unit CostThe average Cost per unit of output. Unit Cost is determined by relating total Cost to the total output quantity.Variable CostVariable Costs depend on the output volume and therefore change in line with the company's activity level.REVIEW QUESTIONS
- R1.Give examples of how management uses unit Costs for analysis.
- R2.
eBook - PDF- William Boyes, Michael Melvin(Authors)
- 2015(Publication Date)
- Cengage Learning EMEA(Publisher)
Total Costs ( TC ) are the expenses that a business has in supplying goods and/or services. They are the payments to land, labor, and capi-tal. These Costs can be divided into variable and fixed Costs. Total fixed Costs ( TFC ) are payments to resources whose quantities cannot be changed during a fixed period of time—the short run. Typically, fixed Costs include rent and some of the payments to workers, suppliers, and others; often there are fixed contracts, such as labor contracts and rental agreements, that cannot be changed for a period of time such as a year. Other Costs are variable. Total variable Costs ( TVC ) are payments for additional resour-ces used as output increases. For instance, we need more electricity and water when we sell more goods and services. We may need to employ workers for more hours or hire temporary workers. These are variable Costs. Average Costs are simply the Costs per E C O N O M I C I N S I G H T Overhead Economists classify Costs as either fixed or variable. Fixed Costs do not change as the volume of production changes. Variable Costs, on the other hand, depend on the volume of production. In business, Costs are often classified into over-head and direct operating Costs. Overhead Costs are those that are not directly attributable to the production process. They include items such as taxes, insurance premiums, man-agerial or administrative salaries, paperwork, the Cost of elec-tricity not used in the production process (such as electricity used in the administration building), and so on. Overhead Costs can be either fixed or variable. Insurance premiums, taxes, and managerial salaries are fixed Costs. They must be paid regardless of how much is produced. Electricity used to operate the production process is a variable Cost, increasing as the quantity of output produced is increased. The electric-ity used in a classroom would be a direct Cost, whereas the electricity used in the administration building would be an indirect Cost.
- Kumar, K Nirmal Ravi(Authors)
- 2021(Publication Date)
- Daya Publishing House(Publisher)
size of agri-business, the level of production, the nature of technology used, the quantity of resources and resource services used, managerial and labour efficiency etc. Thus, the Cost of production of a commodity is the aggregate of prices paid for the factors of production used in producing a commodity. Generally, the term ‘Cost of production’ refers to the money expenses incurred in the production of a commodity. In the words of Gulhrie and Wallace, ‘ in Economics, Cost of production has a special meaning. It is all of the payments or expenditures necessary to obtain the factors of production of land, labor, capital and management required to produce a commodity. It represents money Costs which we want to incur in order to acquire the factors of production ’. In the words of Campbell, ‘production Costs are those, which must be received by resource owners in order to assume that, they will continue to supply them in a particular time of production’ . But money expenses are not the only expenses incurred in the production of a commodity and there are number of factors and services such as, entrepreneurship, land, capital etc., which are offered by the farmer himself without charging any price or receiving any payment for them. So, while computing the total Cost of production, allowance should be made for such expenses. This allocation and use of resources in the farm will influence the supply of output. The supply of output along with demand in the market determines the price of the commodity. So, we can say, Cost of the resources indirectly influences the price of the commodity. It is, therefore, essential to have clear understanding about different types of Costs that influence the output or production of the farm. 15.1. Different Types of Costs There are different types of Costs widely used in the production programmes and they are discussed here under.
No longer available |Learn more- Don Hansen, Maryanne Mowen(Authors)
- 2017(Publication Date)
- Cengage Learning EMEA(Publisher)
For external fi nancial reporting, FASB rules and conventions mandate that only production Costs be used in calculating product Costs. Other objectives may use still other product Cost de fi nitions. Product Costs and External Financial Reporting An important objective of a Cost management system is the calculation of product Costs for external fi nancial reporting. Externally imposed conventions require Costs to be classi fi ed in terms of the special purposes, or functions, they serve. Costs are subdi-vided into two major functional categories: production and nonproduction. Produc-tion (or product ) Costs are those Costs associated with manufacturing goods or providing services. Nonproduction Costs are those Costs associated with the functions of selling and administration. For tangible goods, production and nonproduction Costs are often referred to as manufacturing Costs and nonmanufacturing Costs , respec-tively. Production Costs can be further classi fi ed as direct materials , direct labor , and overhead . Only these three Cost elements can be assigned to products for external fi -nancial reporting. 38 Chapter 2 Basic Cost Management Concepts Direct Materials Direct materials are those materials traceable to the good or ser-vice being produced. The Cost of these materials can be directly charged to products because physical observation can be used to measure the quantity used by each product. Materials that become part of a tangible product or those materials that are used in pro-viding a service are usually classi fi ed as direct materials. For example, steel in an auto-mobile, wood in furniture, alcohol in cologne, denim in jeans, braces for correcting teeth, surgical gauze and anesthesia for an operation, ribbon in a corsage, and soft drinks on an airline are all direct materials. Direct Labor Direct labor is labor that is traceable to the goods or services being pro-duced.
eBook - PDF- Cecile Laurin, Tage C. Tracy, John A. Tracy, John A. Tracy(Authors)
- 2023(Publication Date)
- For Dummies(Publisher)
Fixed versus variable Costs If your business sells 100 more units of a certain item, some of your Costs increase accordingly, but others don’t budge one bit. This distinction between variable and fixed Costs is crucial: » Variable Costs: Variable Costs increase and decrease in proportion to changes in sales or production level. Variable Costs generally remain the same per unit of product or per unit of activity. Manufacturing or selling additional units causes variable Costs to increase in concert. Manufacturing or selling fewer units results in variable Costs going down in concert. » Fixed Costs: Fixed Costs remain the same over a relatively broad range of sales volume or production output. Fixed Costs are like a dead weight on the business. Its total fixed Costs for the period are a hurdle it must overcome by selling enough units at high enough margins per unit to avoid a loss and move into the profit zone. (Chapter 15 explains the break-even point, which is the level of sales needed to generate enough margin to cover fixed Costs for the period.) CHAPTER 16 Accounting for Costs 313 The distinction between variable and fixed Costs is at the heart of understanding, analyzing, and forecasting profit, which we explain in Chapter 17. Relevant versus irrelevant Costs Not every Cost is important to every decision a manager needs to make — hence the distinction between relevant and irrelevant Costs: » Relevant Costs are Costs that should be considered and included in your analysis when deciding on a future course of action. Relevant Costs are future Costs — Costs that you would incur or bring upon yourself depending on which course of action you take. For example, say that you want to increase the number of books that your business produces next year to increase your sales revenue, but the Cost of paper has just shot up.
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