What is cost?

We explain what the cost is and what types of costs exist. Fixed cost and variable cost. Cost relationship with production.

1. What is cost?

The cost, also called cost, is the economic expense caused by the production of some good or the offer of some service . This concept includes the purchase of inputs, the payment of labor, production and administrative expenses , among other activities.

The way to calculate the costs of a company or organization may vary. But usually four categories are usually carried out which are then added in order to estimate the total cost that has been made in a certain period of time .

• Industrial cost. This first category includes both general and basic costs.
• Financial cost The second category that may be mentioned include the costs of financing of the business .
• Operating cost Third, this category refers to the general costs of either sales or administration .
• Direct cost. The last category is that of direct cost, where the energy used, labor and the use of raw materials can be mentioned.

2. Types of costs

In addition, the concept of cost can be classified based on various criteria, some examples are:

Variation of costs:

• Fixed cost. These costs are included in the expenses of the company beyond the production obtained, that is to say that its value will not be greater or less because of what has been produced. Fixed costs can only be stipulated in the short term since eventually they eventually vary. Some cases are rent payments, taxes, etc.
• Variable cost. In this case the variation of the cost is in relation to the produced, that is to say that if the production is increased these costs will be greater and vice versa. Some examples are those of water , gasoline, energy , among others.
• Semi-variable cost. In this case the costs may vary as produced, but these changes are rather progressive, not as in the previous case.

Relationship factors of production and products :

• Indirect costs. This type of costs has consequences on the production in total, that is to say that a certain product cannot be established, for this the costs must be distributed equally. An example of this type of cost is the increase in cleaning supplies factory or increase the wages of workers .
• Direct costs. In contrast to the previous case, these costs can be assigned to each particular good or service. An example could be the increase in flour would have a direct impact on the production of bread or the increase in ink on the production of books.

Costs according to their nature. In this case, the costs of labor , finances , expenditure on raw materials and other supplies used in production are estimated , opportunity costs, that is, those investments that were not made due to lack of capacity and Finally, the expense for receiving services outside the company, such as transportation, should the company have to hire other companies that offer this services.