Cost

 Definition Of Cost 

In production, research, retail, and accounting, A cost is the value of money that has been used up to produce something, and hence is not available for use anymore.  In business,in which case the amount of money expended to acquire it is counted as cost. In this case, money is the input that is gone in order to acquire the thing. This acquisition cost may be the sum of the cost of production as incurred by the original producer, and further costs of transaction as incurred by the acquirer over and above the price paid to the producer. In  economics,ost is a metric that is totaling up as a result of a process or as a differential for the result of a decision.^[1] Hence cost is the metric used in the standard modeling paradigm applied to economic processes.

Type of Cost

1. Historical Cost is the original nominal monetary value of an economic item. Historical cost is based on the stable measuring unit assumption.Historical cost does not generally reflect current market valuation.The historical cost will equal the carrying value if there has been no change recorded in the value of the asset since acquisition. Improvements may be added to the cost basis of an asset.

2. Opportunity Cost is the value of the best alternative forgone where, given limited resources, a choice needs to be made between several mutually exclusive alternatives. Assuming the best choice is made, it is the "cost" incurred by not enjoying the benefit that would have been had by taking the second best available choice. The New Oxford American Dictionary defines it as "the loss of potential gain from other alternatives when one alternative is chosen." Opportunity cost is a key concept in economics, and has been described as expressing "the basic relationship between scarcity and choice. The notion of opportunity cost plays a crucial part in attempts to ensure that scarce resources are used efficiently. Thus, opportunity costs are not restricted to monetary or financial costs: the real cost of output forgone, lost time, pleasure or any other benefit that provides utility should also be considered opportunity costs.

3. marginal cost is the change in the total cost that arises when the quantity produced is incremented by one unit, that is, it is the cost of producing one more unit of a good.n general terms, marginal cost at each level of production includes any additional costs required to produce the next unit. For example, if producing additional vehicles requires building a new factory, the marginal cost of the extra vehicles includes the cost of the new factory.

4. sunk cost is a cost that has already been incurred and cannot be recovered. Sunk costs (also known as retrospective costs) are sometimes contrasted with prospective costs, which are future costs that may be incurred or changed if an action is taken.However, many economists consider it a mistake to classify sunk costs as "fixed" or "variable." For example, if a firm sinks $400 million on an enterprise software installation, that cost is "sunk" because it was a one-time expense and cannot be recovered once spent. A "fixed" cost would be monthly payments made as part of a service contract or licensing deal with the company that set up the software. The upfront irretrievable payment for the installation should not be deemed a "fixed" cost, with its cost spread out over time. Sunk costs should be kept separate. The "variable costs" for this project might include data centre power usage, etc.

5. transaction cost is a cost incurred in making an economic exchange (restated: the cost of participating in a market.Transaction costs can be divided into three broad categories:

• Search and information costs are costs such as in determining that the required good is available on the market, which has the lowest price, etc.
• Bargaining costs are the costs required to come to an acceptable agreement with the other party to the transaction, drawing up an appropriate contract and so on. In game theory this is analyzed for instance in the game of chicken. On asset markets and in market microstructure, the transaction cost is some function of the distance between thebid and ask.
• Policing and enforcement costs are the costs of making sure the other party sticks to the terms of the contract, and taking appropriate action (often through the legal system) if this turns out not to be the case.

6.  historical cost is the original nominal monetary value of an economic item.Historical cost is based on the stable measuring unit assumption. In some circumstances, assets and liabilities may be shown at their historical cost, as if there had been no change in value since the date of acquisition. The balance sheet value of the item may therefore differ from the real value.

The historical cost will equal the carrying value if there has been no change recorded in the value of the asset since acquisition. Improvements may be added to the cost basis of an asset.

Historical cost does not generally reflect current market valuation. Alternative measurement bases to the historical cost measurement basis, which may be applied for some types of assets for which market values are readily available, require that the carrying value of an asset (or liability) be updated to the market price (mark-to-market valuation) or some other estimate of value that better approximates the real value. Accounting standards may also have different methods required or allowed (even for different types of balance sheet variable real value non-monetary assets or liabilities) as to how the resultant change in value of an asset or liability is recorded, as a part of income or as a direct change to shareholders' equity.

The Capital Maintenance in Units of Constant Purchasing Power model is an International Accounting Standards Board approved alternative basic accounting model to the traditional Historical Cost Accounting model.

When developing a business plan for a new or existing company, product, or project, planners typically make cost estimates in order to assess whether revenues/benefits will cover costs (see cost-benefit analysis). This is done in both business and government. Costs are often underestimated, resulting in cost overrun during execution.

Cost-plus pricing, is where the price equals cost plus a percentage of overhead or profit margin.

Manufacturing Costs are those costs that are directly involved in manufacturing of products. Examples of manufacturing costs include raw materials costs and charges related to workers. Manufacturing cost is divided into three broad categories:

1. Direct materials cost.
2. Direct labor cost.
3. Manufacturing overhead cost.

Non-manufacturing Costs are those costs that are not directly incurred in manufacturing a product. Examples of such costs are salary of sales personnel and advertisingexpenses. Generally non-manufacturing costs are further classified into two categories:

1. Selling and distribution Costs.
2. Administrative Costs.