Definition: The assets and liabilities recorded in the balance sheet with its original acquisition cost, the i.e. amount spent at the time of its acquisition are called as the Historical Cost. In other words, the historical cost is an accounting method in which the assets of the firm are recorded in the books of accounts at the same value at which it was first purchased. The … [Read more...] about Historical Cost
Incremental Cost
Definition: The Incremental Cost refers to the additional cost that a company incurs in undertaking certain actions such as expanding the level of production or adding a new variety of product to the product line, etc. The concept of incremental cost is quite similar to the concept of marginal cost, but with a relatively wider connotation. The marginal cost refers to the … [Read more...] about Incremental Cost
Long-run Cost
Definition: The Long-run Cost is the cost having the long-term implications in the production process, i.e. these are spread over the long range of output. These costs are incurred on the fixed factors, Viz. Plant, building, machinery, etc. but however, the running cost and the depreciation on plant and machinery is a variable cost and hence is included in the short-run … [Read more...] about Long-run Cost
Short-run Cost
Definition: The Short-run Cost is the cost which has short-term implications in the production process, i.e. these are used over a short range of output. These are the cost incurred once and cannot be used again and again, such as payment of wages, cost of raw materials, etc. In a short-run, at least one factor of production is fixed while the other remains variable. … [Read more...] about Short-run Cost
Marginal Cost
Definition: The Marginal Cost refers to the change in the total cost as a result of the production of one more unit of the product. In other words, the marginal cost is the increase or decrease in the total cost due to the production of one additional unit of the product. The marginal cost includes any cost incurred in producing the next unit of the product and hence is … [Read more...] about Marginal Cost
Average Cost
Definition: The Average Cost is the per unit cost of production obtained by dividing the total cost (TC) by the total output (Q). By per unit cost of production, we mean that all the fixed and variable cost is taken into the consideration for calculating the average cost. Thus, it is also called as Per Unit Total Cost. Symbolically, the average cost is expressed as: AC = … [Read more...] about Average Cost
Total Cost
Definition: The Total Cost is the actual cost incurred in the production of a given level of output. In other words, the total expenses (cost) incurred, both explicit and implicit, on the resources to obtain a certain level of output is called the total cost. The total cost includes both the variable cost (that varies with the change in the total output) and the fixed cost … [Read more...] about Total Cost
Variable Cost
Definition: The Variable cost is the cost proportionally related to the level of output, i.e. it increases with the increase in the production and contracts with the decrease in the total output. Simply, the cost which varies with the change in the total output is called the variable cost. The most common form of variable costs is raw material, direct labor related to the … [Read more...] about Variable Cost
Fixed Cost
Definition: The Fixed Cost is the cost that remains fixed for a certain volume of output. In other words, the cost that does not change with the change in the output or sales revenue, i.e. it remains fixed irrespective of the volume of output is called the fixed cost. The concept of fixed cost is associated with the short run since all the costs vary over time, and no cost … [Read more...] about Fixed Cost
Book Cost
Definition: The Book Cost refers to those expenses which do not involve actual cash payments, but rather the provisions are made in the books of accounts to include them in the profit and loss accounts and avail the tax advantages. In other words, the expenses which are not payable in cash, but rather their provisions are made in the books of accounts while finalizing the … [Read more...] about Book Cost