In production, research, retail, and accounting, a cost is the value of money th

at has been used up to produce something, and hence is not available for use any
more. In business, the cost may be one of acquisition, in which case the amount
of money expended to acquire it is counted as cost. In this case, money is the i
nput that is gone in order to acquire the thing. This acquisition cost may be th
e sum of the cost of production as incurred by the original producer, and furthe
r costs of transaction as incurred by the acquirer over and above the price paid
to the producer. Usually, the price also includes a mark-up for profit over the
cost of production.
More generalized in the field of economics, cost 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 econo
mic processes.
Costs (pl.) are often further described based on their timing or their applicabi
lity.
Contents [hide]
1
Types of accounting costs
2
Comparing private, external, and social costs
3
Cost estimation
4
Manufacturing costs vs. non-manufacturing costs
5
Other costs
6
See also
7
References
8
Further reading
Types of accounting costs[edit]
Main articles: accounting cost, opportunity cost, historical cost, marginal cost
, sunk cost, and transaction cost
In accounting, costs are the monetary value of expenditures for supplies, servic
es, labor, products, equipment and other items purchased for use by a business o
r other accounting entity. It is the amount denoted on invoices as the price and
recorded in bookkeeping records as an expense or asset cost basis.
Opportunity cost, also referred to as economic cost is the value of the best alt
ernative that was not chosen in order to pursue the current endeavor i.e., what co
uld have been accomplished with the resources expended in the undertaking. It re
presents opportunities forgone.
In theoretical economics, cost used without qualification often means opportunit
y cost.[citation needed]
Comparing private, external, and social costs[edit]
Main articles: Externality and social cost
When a transaction takes place, it typically involves both private costs and ext
ernal costs.
Private costs are the costs that the buyer of a good or service pays the seller.
This can also be described as the costs internal to the firm's production funct
ion.
External costs (also called externalities), in contrast, are the costs that peop
le other than the buyer are forced to pay as a result of the transaction. The be
arers of such costs can be either particular individuals or society at large. No
te that external costs are often both non-monetary and problematic to quantify f
or comparison with monetary values. They include things like pollution, things t
hat society will likely have to pay for in some way or at some time in the futur
e, but that are not included in transaction prices.

Social costs are the sum of private costs and external costs.
For example, the manufacturing cost of a car (i.e., the costs of buying inputs,
land tax rates for the car plant, overhead costs of running the plant and labor
costs) reflects the private cost for the manufacturer (in some ways, normal prof
it can also be seen as a cost of production; see, e.g., Ison and Wall, 2007, p.
181). The polluted waters or polluted air also created as part of the process of
producing the car is an external cost borne by those who are affected by the po
llution or who value unpolluted air or water. Because the manufacturer does not
pay for this external cost (the cost of emitting undesirable waste into the comm
ons), and does not include this cost in the price of the car (a Kaldor-Hicks com
pensation), they are said to be external to the market pricing mechanism. The ai
r pollution from driving the car is also an externality produced by the car user
in the process of using his good. The driver does not compensate for the enviro
nmental damage caused by using the car.
Cost estimation[edit]
Main articles: Cost estimation, Cost overrun, and parametric estimating
When developing a business plan for a new or existing company, product, or proje
ct, planners typically make cost estimates in order to assess whether revenues/b
enefits will cover costs (see cost-benefit analysis). This is done in both busin
ess and government. Costs are often underestimated, resulting in cost overrun du
ring execution.
Cost-plus pricing, is where the price equals cost plus a percentage of overhead
or profit margin.
Manufacturing costs vs. non-manufacturing costs[edit]
Manufacturing costs are those costs that are directly involved in manufacturing
of products. Examples of manufacturing costs include raw materials costs and cha
rges related to workers. Manufacturing cost is divided into three broad categori
es:
Direct materials cost.
Direct labor cost.
Manufacturing overhead cost.
Non-manufacturing costs are those costs that are not directly incurred in manufa
cturing a product. Examples of such costs are salary of sales personnel and adve
rtising expenses. Generally non-manufacturing costs are further classified into
two categories:
Selling and distribution costs.
Administrative costs.
Other costs[edit]
A defensive cost is an environmental expenditure to eliminate or prevent environ
mental damage. Defensive costs form part of the genuine progress indicator (GPI)
calculations.
Labour costs would include travel time, holiday pay, training costs, working clo
thes, social insurance, taxes on employment &c.
Path cost is a term in networking to define the worthiness of a path, see Routin
g.
See also[edit]
Average cost
Cost accounting
Cost curve
Fixed cost
Incremental cost

Life-cycle cost
Outline of industrial organization
Repugnancy costs
Semi-variable cost
Total cost
Variable cost
References[edit]
Jump up ^ O'Sullivan, Arthur; Sheffrin, Steven M. (2003). Economics: Principles
in Action. Upper Saddle River, New Jersey 07458: Pearson Prentice Hall. p. 16. I
SBN 0-13-063085-3.
Further reading[edit]
William Baumol (1968), Entrepreneurship in Economic Theory. American Economic Re
view, Papers and Proceedings.
Stephen Ison and Stuart Wall (2007), Economics, 4th Edition, Harlow, England; Ne
w York: FT Prentice Hall.
Israel Kirzner (1979), Perception, Opportunity and Profit, Chicago: University o
f Chicago Press.