Cost

I. Generally cost is known as given something in

exchange of goods and services. The resources are
expressed in term of money and money worth and
monetary expense. The firm decision on profit
maximizing output depends on behavior of its cost
and behavior of its revenue. The firm cost of
production is as its monetary expenses. In order to
produce a good every firm make use of various
factor and non factor inputs. The amount spend on
using these inputs is called cost of production. There
is different types of cost like money cost, real cost,
business cost etc.

Types of costs
Money cost= the amount spent in term of money is
called money cost. For example wages of laborers,
insurance, taxes, rent etc.
Real cost=mental and physical efforts and sacrifices
undergone with a view of producing a commodity is
called real cost. Real cost is not expressed in term of
money it is only expressed in term of efforts. for example
if a potter has to work for eight for produce a toy then
this eight hour labor will real cost of a toy.
Business cost=business cost refer cash payment which a
firm make for factor and non- factor inputs. The business
cot recorded on the book of accounting. It is also called
actual cost and direct cost
Opportunity cost=opportunity cost is of cost of next best
alternative. It is also called alternative cost. In fact
utmost managerial decision is based on opportunity cost
but however it must be remembered that if there is no
alternative to a specific course of action then the
opportunity cost is zero.
Direct cost= the expenses incurred on raw material, on
labor which is easily and economically traceable to the
product is called direct cost. During the course of
production material are bought and labor are employed
and for paid and certain other expenses are incurred
directly. They are identifiable with a product. They are
thus called direct cost.
Indirect cost= the indirect cost are those expenses which
are incurred on those items which is not chargeable to
the product. For example foremen, factory rent, time
keeper etc.
Private cost= private cost incurred by an individual firm
for producing a commodity. It includes both explicit cost
and implicit cost.
Explicit cost= some inputs bought and hired by a firm.
The monetary payment which a firm make to those
outsider how supply service is called explicit cost