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
Out-of-Pocket Cost
Definition: The Out-of-Pocket Cost involves the potential future cash payments or cash transfers both recurring and non-recurring, paid during the current accounting period or during the project. In other words, the out-of-pocket cost involves the direct monetary payment for the work done during the project. It is an explicit cost paid in the form of wages, rent, cost of … [Read more...] about Out-of-Pocket Cost
Implicit Cost
Definition: The Implicit Cost, also called as Imputed Cost is the implied cost that does not take a form of cash outlay, and neither is recorded in the books of accounts. The opportunity cost is the important example of implicit cost wherein the expected returns from the second best alternative action is foregone while pursuing a certain action. The implicit or imputed cost … [Read more...] about Implicit Cost
Explicit Cost
Definition: The Explicit cost, also called as Actual Cost is the cost actually incurred by the firm for making all the physical payments and the contractual obligations. The physical payments include the cost of material, labor, plant, equipment, building, technology, advertisement, etc. Thus, all the money expenses recorded in the books of accounts are, for practical … [Read more...] about Explicit Cost