Editing Cost

{{Short description|Money spent to produce or procure goods or services}}
{{Other uses}}
{{redirect|Expensive|the song by Ty Dolla Sign featuring Nicki Minaj|Expensive (song)}}
{{accounting}}
'''Cost''' is the value of [[money]] that has been used up to produce something or deliver a service, and hence is not available for use anymore. In business, the cost may be one of acquisition, in which case the amount of money expended to acquire it is counted as cost. In this case, money is the input that is gone in order to acquire the thing. This acquisition cost may be the sum of the cost of production as incurred by the original producer, and further costs of transaction as incurred by the acquirer over and above the [[price]] paid to the producer. Usually, the price also includes a mark-up for profit over the cost of production.

More generalized in the field of [[economics]], cost is a [[performance metric|metric]] that is totaling up as a result of a process or as a differential for the result of a [[Decision making|decision]].<ref>{{cite book
  | last = O'Sullivan
  | first = Arthur
  | author-link = Arthur O'Sullivan (economist)
  | first2 = Steven M. | last2 = Sheffrin
  | title = Economics: Principles in Action
  | url = https://archive.org/details/economicsprincip00osul
  | url-access = limited
  | publisher = Pearson Prentice Hall
  | year = 2003
  | location = Upper Saddle River, New Jersey
  | page = [https://archive.org/details/economicsprincip00osul/page/n32 16]
  | isbn = 0-13-063085-3}}</ref>  Hence cost is the metric used in the standard [[Business process modelling|modeling]] [[paradigm]] applied to economic [[Business process|processes]].

Costs (pl.) are often further described based on their timing or their applicability.

==Types of accounting costs ==
{{main|accounting cost|opportunity cost|historical cost|marginal cost|sunk cost|standard cost accounting}}

In accounting, costs are the monetary value of expenditures for supplies, services, labor, products, equipment and other items purchased for use by a business or other accounting entity.<ref>{{Cite web |last=Reviso |title=What is cost? |url=https://www.reviso.com/cost/}}</ref> It is the amount denoted on [[invoice]]s as the [[price]] and recorded in [[book keeping]] records as an [[expense]] or asset [[cost basis]].

[[Opportunity cost]], also referred to as ''[[economic cost]]'' is the value of the best alternative that was not chosen in order to pursue the current endeavor—i.e., what could have been accomplished with the resources expended in the undertaking. It represents opportunities forgone.<ref>{{Cite web |title=Opportunity Cost: Definition, Calculation Formula, and Examples |url=https://www.investopedia.com/terms/o/opportunitycost.asp |access-date=2024-01-30 |website=Investopedia |language=en}}</ref>

In theoretical economics, '''cost''' used without qualification often means opportunity cost.<ref>{{cite web|title=CCP Exam Dumps|url=https://www.dumpsbook.com/Exam/CCP|access-date=1 March 2018|archive-date=29 September 2020|archive-url=https://web.archive.org/web/20200929063937/https://dumpsbook.com/Exam/CCP|url-status=dead}}</ref>

==Comparing private, external, and social costs==
{{main| Externality|social cost}}When a transaction takes place, it typically involves both private costs and external costs.

'''Private costs''' are the costs that the buyer of a good or service pays the seller.<ref>{{Cite web |title=Private cost - Energy Education |url=https://energyeducation.ca/encyclopedia/Private_cost#:~:text=The%20private%20cost%20is%20any,a%20result%20of%20the%20production. |access-date=2024-01-30 |website=energyeducation.ca}}</ref> This can also be described as the costs internal to the firm's [[production function]].

[[Externality|External costs]] (also called externalities), in contrast, are the costs that people other than the buyer are forced to pay as a result of the transaction. The bearers of such costs can be either particular individuals or society at large.<ref>{{Cite web |title=External Cost |url=https://www.tutor2u.net/economics/topics/external-cost |access-date=2024-01-30 |website=www.tutor2u.net |language=en}}</ref> Note that external costs are often both non-monetary and problematic to quantify for comparison with monetary values. They include things like pollution, things that society will likely have to pay for in some way or at some time in the future, even so that are not included in transaction prices.

[[Social cost]]s are the sum of private costs and external costs.<ref>{{Cite web |title=Social Cost |url=https://www.economicshelp.org/blog/glossary/social-cost/ |access-date=2024-01-30 |website=Economics Help |language=en-GB}}</ref>

For example, the manufacturing cost of a car (i.e., the costs of buying inputs, land tax rates for the car plant, [[Overhead (business)|overhead costs]] of running the plant and labor costs) reflects the ''private cost'' for the manufacturer (in some ways, normal profit can also be seen as a cost of production; see, e.g., Ison and Wall, 2007, p.&nbsp;181). The polluted waters or polluted air also created as part of the process of producing the car is an ''external cost'' borne by those who are affected by the pollution or who value unpolluted air or water. Because the manufacturer does not pay for this external cost (the cost of emitting undesirable waste into the commons), and does not include this cost in the price of the car (a [[Kaldor–Hicks efficiency|Kaldor–Hicks compensation]]), they are said to be external to the market pricing mechanism. The air pollution from driving the car is also an externality produced by the car user in the process of using his good. The driver does not compensate for the [[environmental degradation|environmental damage]] caused by using the car.

==Cost estimation==
{{Main|Cost estimation|Cost overrun|parametric estimating}}

When developing a [[business plan]] for a new or existing company, product or project, planners typically make cost estimates in order to assess whether [[revenue]]s/benefits will cover costs (see [[cost–benefit analysis]]). This is done in both business and government. Costs are often underestimated, resulting in [[cost overrun]] during execution.

''Cost-plus pricing'' is where the price equals cost plus a percentage of overhead or profit margin. In [[business economics]], the profitability of a trade or sales prospect relies on the ability of an enterprise to sustain [[Price#Market price|market prices]] that cover all costs and leave a [[Economic surplus#Producer surplus|surplus]] for owner interest, as expressed by: 

<math>\text{Profit = Revenues – Costs}</math>{{efn|[[Gross income|Gross profit]] is revenue minus the [[cost of goods sold]].<ref>{{cite web |title=Revenue vs. Profit: What's the Difference? |url=https://www.investopedia.com/ask/answers/122214/what-difference-between-revenue-and-profit.asp |publisher=Investopedia}}</ref>}}

== Manufacturing costs vs. non-manufacturing costs ==
'''[[Manufacturing cost]]s''' are those costs that are directly involved in [[manufacturing]] of products.<ref>{{Cite web |title=Production Costs vs. Manufacturing Costs: What's the Difference? |url=https://www.investopedia.com/ask/answers/042715/whats-difference-between-production-cost-and-manufacturing-cost.asp |access-date=2024-01-30 |website=Investopedia |language=en}}</ref> Examples of manufacturing costs include [[raw materials]] costs and charges related to workers. Manufacturing cost is divided into three broad categories:<ref>{{Cite web |title=Total manufacturing cost: What is it and how to calculate it |url=https://www.oneadvanced.com/news-and-opinion/total-manufacturing-cost-what-is-it-and-how-to-calculate-it/ |access-date=2024-01-30 |website=Advanced |language=en}}</ref>

#[[Direct materials cost]].
#[[Direct labor cost]].
#[[Manufacturing overhead cost]].
 
Non-manufacturing costs are those costs that are not directly incurred in manufacturing a [[product (business)|product]].<ref>{{Cite web |date=2021-02-27 |title=2.3: Cost Terminology |url=https://biz.libretexts.org/Courses/Folsom_Lake_College/ACCT_311%3A_Managerial_Accounting_(Black)/02%3A_Types_of_Costs/2.03%3A_Cost_Terminology |access-date=2024-01-30 |website=Business LibreTexts |language=en}}</ref> Examples of such costs are salary of sales [[personnel]] and [[advertising]] expenses. Generally, non-manufacturing costs are further classified into two categories:<ref>{{Cite web |last=Bragg |first=Steven |date=2023-10-08 |title=Nonmanufacturing overhead costs definition |url=https://www.accountingtools.com/articles/nonmanufacturing-overhead-costs-definition |access-date=2024-01-30 |website=AccountingTools |language=en-US}}</ref>

#Selling and distribution costs.
#[[Administration of business|Administrative]] costs.

==Other costs==
{{Unreferenced section|date=June 2023}}

A '''defensive cost''' is an environmental expenditure to eliminate or prevent environmental damage. Defensive costs form part of the [[Genuine progress indicator|genuine progress indicator (GPI)]] calculations.

Labour '''costs''' would include travel time, holiday pay, training costs, working clothes, social insurance, taxes on employment &c.

'''Path cost''' is a term in networking to define the worthiness of a path, see [[Routing]].

==See also==
{{div col|colwidth=22em}}
* [[Average cost]]
* [[Cost accounting]]
* [[Cost curve]]
* [[Cost object]]
* [[Direct cost]]
* [[Fixed cost]]
* [[Incremental cost]]
* [[Indirect cost]]
* [[Whole-life cost|Life-cycle cost]]
* [[Outline of industrial organization]]
* [[Repugnancy costs]]
* [[Semi-variable cost]]
* [[Total cost]]
* [[Variable cost]]
{{div col end}}

==Notes==
{{Notelist}}

==References==
{{Reflist}}

{{Commons category|Costs}}
{{Wiktionary|cost|time-consuming}}

{{Authority control}}

[[Category:Costs| ]]