Cost and the concepts of cost:
The cost is the monetary value that has been spent by a company in order to produce something. In business, cost expresses the amount of money that is spent on the production or creation of a good or service. Cost does not include a mark-up for profit.
Concepts of cost:-
- Money Cost – Money cost is the cost which the firm has to incur in purchasing or hiring productive services. It includes rental expenses, wages and salaries, expenses on machinery, types of equipment and raw materials.
- Explicit costs – Explicit costs are the money costs paid by the firm to the owners of various factor services. These costs are the only money expenses actually incurred by the firm on the purchase of factor services.
- Implicit costs – The costs incurred on self- owned or self-employed resources are called implicit costs. In other words, it is the cost for which no money payment is made but the owner himself provides the factor services. For example, the entrepreneur may contribute his own land.
- Opportunity cost – The opportunity cost of any economic resources is defined as the amount of next best alternative goods that are given up to produce these goods. For example, a plot of land can be used to produce wheat, rice, maize etc.
- Accounting costs – Accounting costs refer to all types of explicit cost recorded in the accounting book.
- Economic costs – Economic costs are the aggregate of explicit costs and implicit costs.
Therefore the concepts of cost or types of cost are explained above.
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