Different Concept of Cost

(Life cycle cost, Opportunity cost,

Recurring cost, Non-recurring cost)

Name:- Pravat Kumar Rout

Roll No:- 26900721042
Department:- Mechanical Engineering
7th Semester
Modern Institute of Engineering & Technology
Introduction

• A firm carries out business to earn

maximum profits.
• Profits are the revenues collected by a
business firm after production and
sale of their goods and services.
• But to gain something, the producer
has to lose something. That means, to
earn revenues the producer has to
incur costs
Cost
• A cost is an expenditure incurred
by a firm to produce goods and
services for sale in the market.
• In other words, a cost is the
outflow of money from the
business to gain inflow of money
after sale of the commodity.
• A producer has to incur various
costs in order to produce goods
and services. These costs are of
various types.
• Some of these costs are discussed
below.
 Life Cycle
Cost

• Life cycle costing is a

method of analyzing the
total cost of a product or
service over its entire life
span, from design to
disposal.
• It helps managers make
informed decisions about
pricing, profitability,
sustainability, and
innovation. In this article,
you will learn how to
calculate the life cycle cost
of a product or service
using a simple formula
and some examples.
 Life Cycle Cost

• Life cycle costing (LCC) is a technique

that considers all the costs associated
with a product or service throughout
its life cycle, including acquisition,
operation, maintenance, and disposal.
• LCC aims to capture the true cost of
ownership and the environmental
impact of a product or service, rather
than focusing on the initial purchase
price alone.
• LCC can help managers compare
different alternatives, optimize the
design and performance of a product
or service, and identify potential
savings and improvements.
Life Cycle Cost

•LCC = Purchase Costs + Lifetime

Maintenance Costs + Lifetime
Operating Costs + Financing Costs
+ Depreciation Costs + End of Life
Costs – Residual Value
 Opportunity cost

• Opportunity costs represent the potential

benefits that an individual, investor, or
business misses out on when choosing one
alternative over another.

•Formula and Calculation of Opportunity Cost

•Opportunity Cost=FO−CO
•where:FO=Return on best forgone option
•CO=Return on chosen option​
 • A recurring cost is one that occurs at regular
intervals and is anticipated.
• Recurring expenses or repeating costs are those
Recurring expenses that are brought about as a
component of ordinary, daily practice, and
Cost continuous business tasks. To guarantee
proceeds with business activities, these costs
are hence brought about oftentimes on a
periodic premise.
 •Examples of recurring expenses:
Recurring •Rent or lease payments for a small office and
storage facilities. Vehicle payments and fuel for
Cost transporting equipment. Insurance premiums. Payroll
expenses, including wages and benefits.
 • A non-recurring cost is one that occurs at
irregular intervals and is not generally
Non- anticipated.
• Non-recurring expenses or non-repeating costs
recurring are those expenses that don’t emerge out of
schedule, everyday business activities yet rather
Cost are owing to one-off or exceptional occasions.
Non-repeating costs are consequently rare in
nature and not expected to be repeated in
nature.
 Non- • Examples:
•Restructuring charges inclusive of severance pay and
recurring factory closings.
•Losses from discontinued operations.
Cost •Losses from the sale of assets.
 • 1)"Cost Accounting vs. Managerial Accounting -
References AccountingVerse"
. accountingverse.com.
• 2) Vanderbeck, Edward J. (February 2012).
Principles of Cost Accounting - Edward J. Vander
beck - Google Books
.
• 3) Bhabatosh Banerjee, Cost accounting : theory
and practice
• Management Accounting & Control. India: Icfai
Business School. pp. 15–16.
Thanks