COST CONCEPTS

1
What is a cost ?
Cost is a monetary measure of the resources
sacrificed to achieve a specific objective,
like producing a product or rendering a
service.
Real Cost
The ‘real cost of production’ refers to the
physical quantities of various factors used
in producing a commodity.
Real cost signifies the aggregate of real
productive resources absorbed in the
production of a commodity (or a service).
Money Costs
Economists wish to include imputed value
of all the inputs provided by the producer
himself in addition to outright money
transactions between the firm and other
parties from whom inputs are purchased for
carrying out production.
Thus money costs in economic terms or
Economic cost = explicit or Accounting
costs + implicit costs.
Explicit and Implicit Costs
Explicit : Actual paid out costs or actual costs
incurred. They are meant for accounting purpose.
Explicit cost are those costs that involve an actual
payment. Example is salary, rent, payment for raw
material etc.
Implicit costs: Earnings of those employed
resources which belong to the owner himself. For
eg. Owner’s capital invested in business
Future and Past Costs
Future costs are the costs to be incurred in future
and therefore deal with uncertainty and risk. It is
an estimate. The main use of the cost is cost
control, projection of future profit, expansion
programs etc

Past costs are the actual incurred costs in the past.

It is maintained for record purpose which can be
only be observed and evaluated in retrospect