What is Cost Concept? All Different Types of Costs

What is Cost Concept? All Different Types of Costs

It refers to the total outlays of money expenditure, both explicit and implicit, on the resources used to produce a given level of output. The different types of cost accounting include standard costing, activity-based costing, lean accounting, and marginal costing. Standard costing uses standard costs rather than actual costs for cost of goods sold (COGS) and inventory. Activity-based costing takes overhead costs from different departments and pairs them with certain cost objects. Lean accounting replaces traditional costing methods with value-based pricing. Marginal costing evaluates the impact on cost by adding one additional unit into production.

• “Gemini is the result of large-scale collaborative efforts by teams across Google, including our colleagues at Google Research,” according to Dennis Hassabis, CEO and co-founder of Google DeepMind.
• Examples of these cost concepts are, the cost of raw materials and casual labour wages are variable costs.
• For customers with more of an appetite, new offerings include the spicy queso sandwich and the creamy avocado tomatillo sandwich.
• Opportunity cost is the benefits of an alternative given up when one decision is made over another.
• The primary reason, of course, is that most people cannot agree on what an asset’s present value is, whereas the price paid as the asset’s acquisition cost is beyond dispute (in most cases).

As the term predicts, fixed costs don’t change in the volume of output. These costs are constant even with an increase or decrease in the volume of services/ goods produced or sold. Variable costs, in simple words, are a cost that varies according to the outcome of the output. Higher production costs higher expenses and lower production costs lower expenses. If the production is more, the business will pay more and vice versa.

Types of Cost Accounting

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Hence, the basic objective of the cost concept is the measurement of accurate and reliable profits and losses for a business over a period of time. The cost concept of accounting states that all acquisitions of items (e.g., assets or items needed for expending) should be recorded and retained in books at cost. The main difference is that marginal cost represents the additional cost of one extra unit of output, whereas incremental cost represents the additional cost resulting from a group of additional units of output. On the other hand, the opportunity cost is defined as the return expected from the second-best use of resources. It draws a comparison between the policy that was selected and the policy that was rejected.

Cost Concept of Accounting

There are manufacturing costs and non-manufacturing costs, direct and indirect costs, product and period costs, controllable and uncontrollable costs, fixed and variable, etc. It is defined as the per-unit cost incurred on variable factors of production in cost concepts. It is the change in total costs due to the production of one additional unit of output. Explicit costs refer to those which fall under actual or business costs entered in the books of accounts. The payments for wages and salaries, materials, license fee, insurance premium, depreciation charges are the examples of explicit costs. These costs involve cash payments and are recorded in normal accounting practices.

Direct labor is all labor directly involved in producing a finished product; that represents a major labor cost of producing the product. The work of machine operators in a manufacturing concern would be considered direct labor. All materials involved in the production of a product that are not direct materials are indirect materials.

Accounting costs

Sunk costs are those costs that a company has committed to and are unavoidable or unrecoverable costs. That cost that induces any particular factor of production to remain in its existing use is known as opportunity cost. In other words, opportunity cost is the sacrifice of that alternative commodity or commodities, which can be produced with the help of these factors, from which the existing commodity has been produced.

They require a fixed expenditure of funds regardless of the output. Incremental costs are the changes in future costs and that will occur as a result after a decision is made. The economic cost is the combination of gains and losses of the products. This cost is mainly used by economists to compare one with another. Hence there are several different types of concepts of cost, which have been discussed in the following. A financial professional will offer guidance based on the information provided and offer a no-obligation call to better understand your situation.