Article | Financial Cost

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Published (Updated) on Wednesday, October 24, 2012
Cost refers to an amount or expenditure incurred on goods and services. Cost can be termed opportunity or alternative cost that are forgone and could be measured in monetary terms.

Nature of Cost:
-Future cost: These are cost that are needed to be incurred later in future in order to derive benefit on goods and services.

- Historical Cost are expenditure already incurred on goods and services. Historical cost could be expired or un-expired cost. Expired refers to portion of an expenditure that have already been consumed and it is reported in profit and loss account as an expense. While un-expired cost refers to the portion of an expenditure that are yet to be consumed. They are reported in the balance sheet as asset.

Type of Cost( Behavior)
- Fixed cost: Cost that remain unchanged irrespective of the level of activities ( output, units , quantity or volume ). This could also be referred to as period cost as it relates to a span of time.

- Variable Cost: These are cost that varies in d level of activities. Example of variable cost are direct material cost, direct labour cost , sales commission, bonus payment...

-Semi Variable (Quota or mixed): Cost that combine elements of fixed and element of variable cost.

- Total Cost(tc): is the sum of fixed cost(fc) and total variable cost(tvc). TC = FC + TVC.
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