Cost
TYPES OF COSTS
Introduction
:-Production is the result of services rendered by various factors of production.The producer or firm has to make payments for this factor services. From the point of view of the factor inputs it is called ‘factor income’ while for the firm it is ‘factor payment’, or cost of inputs.Generally, the term cost of production refers to the ‘money expenses’ incurredin the production of a commodity. But money expenses are not the only expensesincurred on the production of a commodity. But there are number of services andinputs such as entrepreneurship, land, capital etc. which are offered by anentrepreneur without changing any price or receiving any payment for them. Whilecomputing the total cost of production, allowance should be made for such expenses.It is therefore essential to have clean understanding for the different types of cost.There are several types of costs that a firm may consider relevant under various circumstances. Such costs include future costs, accounting costs, opportunitycosts, implicit costs, fixed costs, variable costs, semi variable costs, private costs,social costs, common costs, etc. For the purposes of decision-making, it is essential toknow the fundamental difference between the main cost concepts along with theconditions of their use in decision-making.
1. Actual (or, Acquisition or, Outlay) Costs and Opportunity (or, Alternative)Costs. Actual costs are the costs which the firm incurs while producing or acquiring a good or a service like the cost on raw material, labor, rent, interest, etc.The books of account generally record this information. The actual costs are also called the outlay costs or acquisition costs or absolute costs. On the other hand;opportunity costs or alternative costs are the return_ from the second-best use of the firms resources which the firm forgoes in order to avail of - the return from the best use of the resources.Suppose that a businessman can buy either a lathe machine
Introduction
:-Production is the result of services rendered by various factors of production.The producer or firm has to make payments for this factor services. From the point of view of the factor inputs it is called ‘factor income’ while for the firm it is ‘factor payment’, or cost of inputs.Generally, the term cost of production refers to the ‘money expenses’ incurredin the production of a commodity. But money expenses are not the only expensesincurred on the production of a commodity. But there are number of services andinputs such as entrepreneurship, land, capital etc. which are offered by anentrepreneur without changing any price or receiving any payment for them. Whilecomputing the total cost of production, allowance should be made for such expenses.It is therefore essential to have clean understanding for the different types of cost.There are several types of costs that a firm may consider relevant under various circumstances. Such costs include future costs, accounting costs, opportunitycosts, implicit costs, fixed costs, variable costs, semi variable costs, private costs,social costs, common costs, etc. For the purposes of decision-making, it is essential toknow the fundamental difference between the main cost concepts along with theconditions of their use in decision-making.
1. Actual (or, Acquisition or, Outlay) Costs and Opportunity (or, Alternative)Costs. Actual costs are the costs which the firm incurs while producing or acquiring a good or a service like the cost on raw material, labor, rent, interest, etc.The books of account generally record this information. The actual costs are also called the outlay costs or acquisition costs or absolute costs. On the other hand;opportunity costs or alternative costs are the return_ from the second-best use of the firms resources which the firm forgoes in order to avail of - the return from the best use of the resources.Suppose that a businessman can buy either a lathe machine