Cost

 In accounting, a cost is defined as a value of money that has been used up to produce something is not available for use anymore. In economics, a cost is referred to an alternative that is given up as a result of a decision. A cost is a sacrifice and is a price paid for any resource. A cost is also a valuation in terms of money of effort, material, resources, time and utilities consumed, risks incurred and opportunity forgone in production and delivery of a good or service. All expenses are costs, but not all costs like in the case of costs incurred in acquisition of an income-generating asset are expenses.

Cost is a price that is paid in order to acquire, produce, accomplish, or maintain anything. Costs are developed and used for some purpose. According to GAAP cost is the monetary value of goods and services expended to obtain current or future benefits. Costs are incurred to receive future benefits and are recorded as assets. Cost includes total money, time and resources associated with a purchase or activity.

Costs are expenses that are paid while producing a product or service. There are three main types of costs. They are fixed cost, variable cost and semi-variable cost. Fixed costs are costs that are fixed over a long period of time and do not change with the change in the output. Fixed costs can also be referred to as indirect costs as they are not directly associated with the final product. Examples are salaries, rent, tax, insurance etc. Variable costs are costs that vary directly with the output. Examples are materials, electricity. These costs are direct costs as they are directly associated with the output. Semi-variable costs are costs that have both fixed and variable elements. For example a person in a company who gets a fixed salary but also earns a commission on sales.  

Questions

• What is a cost?
• What are the types of costs?