Different types of Cost

Different types of Cost

Every production has a process and in this process a firm spent lot of different types of wages, we called it money cost like wages, raw-materials, equipment's, capitals good, rent, interest & different types of tax. All these types of cost are called accounting costs. Money costs are also called explicit costs.

Different types of Cost

Production cost – in production process, we include lot of cost and mostly we divide all cost in two parts, like –

ü  Variable cost – these are the cost which is related fully with our production process. If we increase our production, variables cost automatically increased with it, for example – wages, raw-materials, fuel or other production related costs. These costs have a direct co-relation with production. These cost decrease if our production decrease

ü  Total fix cost – those cost which is not related with production process. We also called them supplementary cost which does not changed according to the production level like rent, interest, depreciation or fix staff. A company must pay for these costs if they close their production. We also called them overhead costs.

Different types of Cost

ü  Real cost – in a production process, a society also sacrifices and do lot of efforts, we call it a real cost like saving by society/investor or sacrifices from leave by an employees.

ü  Opportunity cost – a cost which is related with resources used in different production opportunity, because our resources are rare & also have multiple used for different out- comes or things. In other words, it is a second best option for the use of rare resources. It include both explicit and implicit costs