This document defines different types of costs that businesses deal with and provides examples. It discusses direct and indirect costs, fixed and variable costs, as well as other cost types like average, marginal, historical, predetermined and opportunity costs. Direct costs are those directly related to production while indirect costs cannot be directly assigned to a single product. Costs can also be classified as fixed, variable, or semi-variable depending on how they change with business activity.

1. WELCOME
COST
TYPES OF COST
ELEMENT OF COST

2. WHAT IS COST ?

3. DEFINITION OF COST
 An amount that has to be paid or given up in order to get
something.
 In business, cost is usually a monetary valuation of
(1) effort, (2) material, (3) resources, (4) time and utilities
consumed, (5) risks incurred, and (6) opportunity forgone
in production and delivery of a good or service. All
expenses are costs but not all costs (such as those incurred
in acquisition of an income-generating asset) are expenses.

4. TYPES OF COSTS
 By time (historical, predetermined)
 By traceability (direct, indirect)
 By changes in activities or volume (fixed, variable, semi-
variable)
 By function (manufacturing, administration, selling,
research and development)
 Controllability (controllable, non-controllable)
 Analytical and decision-making (marginal, uniform,
opportunity, sunk, differential etc.)
 By nature of expense (capital, revenue)
 Miscellaneous (conversion, traceable, normal, total)

5.  FIXED COST - Fixed costs are expenses that do not
change in proportion to the activity of a business,
within the relevant period or scale of production. For
example, a retailer must pay rent and utility bills
irrespective of sales.
 VERIABLE COST - Variable costs by contrast change
in relation to the activity of a business such as sales or
production.

6.  AVERAGE COST - Average cost is equal to total cost
divided by the number of goods produced.
 MARGINAL COST -Marginal cost is the change in
total cost that arises when the quantity produced
changes by one unit. In general terms, marginal cost at
each level of production includes any additional costs
required to produce the next unit. So, the marginal
costs involved in making one more wooden table are the
additional materials and labour cost incurred.

7.  TOTAL COST - It is equal to the sum of average
variable costs (total variable costs divided by Output).
total Costs (TC) = Fixed + Variable Costs
 SEMI VERIABLE COST - if you didn’t produce any
cars, if you didn’t produce any cars, you may still need
some workers to look after empty factory.
 OPPORTUNITY COST - Opportunity cost is the next
best alternative foregone.

8.  HISTORICAL COST - In the Generally Accepted
Accounting Principles, the original cost of an asset on
a balance sheet.
 PREDETERMINE - Predetermined cost means that
estimation which is made by a manufacturing
company in advance; it is done even before the
production of a product starts. The calculation for
predetermined cost is done on the basis of various
variables affecting the production like raw material,
labor, factory expense and so on.

9.  IMPUTED COST - Cost that is implied but not
reflected in the financial reports of the firm; also
called implicit cost.
 OUT OF POCKET COST - out-of-pocket costs , are
ones you have to pay yourself, rather than being paid
by the company or organization you are working for.
EXAMPLE- taking a business client to lunch


10.  DIRECT COST - Direct costs are those cost that are
directly related to production of the goods.
 INDIRECT COST - Indirect costs are those costs
which cannot be directly assigned to a single product.
 UNIFORM COST - A public sale in which a fixed
number of similar things are sold at the same price.
Each buyer asks for a particular amount and offers a
particular price that they are willing to pay.

11.  SUNK COST – COST that a company has already spent
or invested in a particular project, etc. and that it
cannot get back: sunk costs that cannot be recovered if
market conditions turn out to be worse than expected.
 DEVELOPMENT COST - Expenses related to the
inception and production of new products that have
not been sold or released by a company. These costs
are based on projected values.

12.  CONTROLABLE COST- Also known as managed costs,
Variable costs such as direct materials, direct labor, and
variable overhead that are usually considered controllable
by the department manager. Further, a certain portion of
fixed costs can also be controllable.
 UNCONTROLABLE COST - An expense that cannot be
unilaterally changed by an individual, department or
business. Example of an uncontrollable cost within a
business context might include an employee's rate of pay
that they cannot change themselves or the rent that a
landlord charges for use of the company's premises.

13. ELEMENT OF COST

14. DIRECT & INDIRECTMATERIAL

15. DIRECT & INDIRECT LABOUR

16. DIRECT & INDIRECT OVERHEAD