In economics, business, and accounting, a cost is the value of money that has been used up to produce something, and hence is not available for use anymore. Economics is the social science that studies the production distribution, and consumption of goods and services. A business (also called firm or an enterprise) is a legally recognized organizational entity designed to provide goods and/or services to Accountancy or accounting is the measurement statement or provision of assurance about financial information primarily used by Lenders managers, 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.

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

Accounting vs opportunity costs

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. It is the amount denoted on invoices as the price and recorded in bookkeeping records as an expense or asset cost basis. An invoice or bill is a commercial document issued by a seller to the Buyer, indicating the products quantities and agreed Prices Bookkeeping (also book-keeping or book keeping) is the recording of all Financial transactions undertaken by an individual or Organization (including In common usage an expense or expenditure is an outflow of Money to another person or group to pay for an item or service or for a category of costs Basis (or cost basis) as used in United States tax law, is the original cost of property adjusted for factors such as Depreciation.

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 endeavour—i. Opportunity cost or economic opportunity loss is the value of a product forgone to produce or obtain Opportunity cost or economic opportunity loss is the value of a product forgone to produce or obtain e. , what could have been accomplished with the resources expended in the undertaking. It represents opportunities forgone.

In theoretical economics, cost used without qualification often means opportunity cost.

Comparing private, external, social, and psychic costs

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. This can also be described as the costs internal to the firm's production function. In Economics, a production function is a function that specifies the output of a firm an industry or an entire economy for all combinations of inputs

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. In Economics, an externality is an impact on any party not directly involved in an economic decision The bearers of such costs can be either particular individuals or society at large. 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, but that are not included in transaction prices.

Social costs are the sum of private costs and external costs. In Economics social cost is defined as the sum of private and external costs

For example, the manufacturing cost of a car (i. e. , the costs of buying inputs, land tax rates for the car plant, overhead costs of running the plant and labour 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. 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 compensation), they are said to be external to the market pricing mechanism. Kaldor-Hicks efficiency (named for Nicholas Kaldor and John Hicks) is a measure of Economic efficiency that captures some of the intuitive appeal of 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 damage caused by using the car.

A psychic cost is a subset of social costs that specifically represent the costs of added stress or losses to quality of life. A psychic cost is a subset of Social costs that specifically represent the costs of added stress or losses to Quality of life.

Cost estimates and cost overrun

When developing a business plan for a new company, product, or project, planners typically make cost estimates in order to assess whether revenues/benefits will cover costs (see cost-benefit analysis). A business plan is a formal statement of a set of business goals the reasons why they are believed attainable and the plan for reaching those goals Cost-benefit analysis is a term that refers both to a formal discipline used to help appraise or assess the case for a Project or proposal which itself is This is done in both business and government. Costs are often underestimated resulting in cost overrun during implementation. Cost overrun is defined as excess of actual Cost over Budget. Main causes of cost underestimation and overrun are optimism bias and strategic misrepresentation (Flyvbjerg et al. Cost underestimation is defined as the act of assessing the Cost of a future venture lower than what actual cost turned out to be once the venture was implemented Optimism bias is the demonstrated systematic tendency for people to be over-optimistic about the outcome of planned actions Strategic misrepresentation is the planned systematic distortion or misstatement of fact—lying—in response to incentives in the Budget process 2002). Reference class forecasting was developed to curb optimism bias and strategic misrepresentation and arrive at more accurate cost estimates. Reference class Forecasting predicts the outcome of a planned action based on actual outcomes in a reference class of similar actions to that being forecast

Cost Plus, is where the Price = Cost plus or minus X%, where x is the percentage of built in overhead or profit margin.

Path cost

Also seen as a term in networking to define the worthiness of a path.

Biological cost

In biology, the biological cost or metabolic price is a measure of the increased energy metabolism that is required to achieve a function. Foundations of modern biology There are five unifying principles Bioenergetics is the subject of a field of Biochemistry that concerns Energy flow through living systems Drug resistance in microbiology, for instance, has a very high metabolic price^[1], especially for antibiotic resistance ^[2]

References

• William Baumol (1968), Entrepreneurship in Economic Theory. American Economic Review, Papers and Proceedings.
• Søren L. Buhl (2002), "Underestimating Costs in Public Works Projects: Error or Lie?" Journal of the American Planning Association, vol. 68, no. 3, 279-295. ]
• [http://flyvbjerg.plan.aau.dk/JAPAASPUBLISHED.pdf Bent Flyvbjerg, Mette K. Skamris Holm, and
• Stephen Ison and Stuart Wall (2007), Economics, 4th Edition, Harlow, England; New York: FT Prentice Hall.
• Israel Kirzner (1979), Perception, Opportunity and Profit, Chicago: University of Chicago Press.

See also