Short Notes
Cost
The total money, time, and resources associated with a purchase or activity.
In production, research, retail, 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. 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.
More generalized in the field of economics, cost is a metric that is totaling up as a result of a process or as a differential for the result of a decision. Hence cost is the metric used in the standard modeling paradigm applied to economic processes.
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.
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. 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.
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 labor 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 (aKaldor-Hicks compensation), they are said to be external to the market pricing mechanism. 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.
Costing Methods
System of computing cost of production or of running a business, by allocating expenditure to various stages of production or to different operations of a firm.
Costing is important because it provides a quantified basis for defining poverty reduction strategies and programs, as well as for forecasting resource gaps and needs, and for mobilizing additional resources, either internally or externally.
While it is usually not possible to obtain reliable cost estimates for the long-term, costing is essential for coordinating the national budget and aid allocations with the prioritized development goals. The price tag and the financing plan of the programs or projects can only be ascertained meaningfully within a short-to-medium time horizon. There are several common costing methodologies, and they all have their usefulness in specific situations. However, no one single methodology is appropriate for every situation. All cost estimates must be interpreted with caution and scrutinized carefully. Nobody should be utterly confident of their precision. In short, there is no universally robust or best way of costing programs or projects. Since it is better to be broadly right than to be precisely wrong, cost estimates are sometimes best seen as orders of magnitude, expressed as a range rather than a single figure.
Cost accounting information is designed for managers. Since managers are taking decisions only for their ownorganization, there is no need for the information to be comparable to similar information from other organizations. Instead, the important criterion is that the information must be relevant for decisions that managers operating in a particular environment of business includingstrategy make. Cost accounting information is commonly used in financial accounting information, but first we are concentrating in its use by managers to take decisions. The accountants who handle the cost accounting information generate add value by providing good information to managers who are taking decisions. Among the better decisions, the better performance of your organization, regardless if it is a manufacturing company, a bank, a non-profit organization, a governmentagency, a school club or even a business school. The cost-accounting system is the result of decisions made by managers of an organization and the environment in which they make them.
The organizations and managers are most of the times interested in and worried for the costs. The control of the costs of the past, present and future is part of the job of all the managers in a company. In the companies that try to have profits, the control of costs affects directly to them. Knowing the costs of the products is essential fordecision-making regarding price and mix assignation of products and services.
Cost reporting
A cost report is a filmmaking term for a weekly report, compiled by the Production Accountant, detailing the costs to date, costs this week and estimate of the costs to complete the film.
Eresource ERP Cost Management feature provides visibility of cost at a single market place. With competition increasing the pressure on margins, your business needs accurate and detailed manufacturing cost reporting for effective business management.
Eresource ERP provides extensive cost information at several levels that helps the business owner to identify cost elements and reduce product cost. Product Manufacturing costing elements in eresource is formulated based of different parameters, including, routing, machines, production volumes, batch sizes, depreciation, labour, material cost, admin cost, selling cost, etc.
Further eresource ERP support multiple inventory valuation methods so you can choose the costing method that best reflects your company's business. For example, eresource ERP has features that let your company compare estimates and production costs for different work centers, machines, employees, and order quantities while monitoring overtime, indirect hours, subcontracted jobs and other costs.
Additionally, you can choose standard, LIFO (Last in first out), FIFO (First in first out), moving average unit, or lot costing, and costing methods can be assigned by item.
Eresource ERP provides extensive information about production cost at several levels, which gives you the visibility you need to identify cost drivers and reduce product costs.
Cost ascertainment
Cost estimation is the process of pre-determining the cost of a certain product job or order. Such pre-determination may be required for several purposes. Some of the purposes are as follows:
Budgeting
Measurement of performance efficiency
Preparation of financial statements (valuation of stocks etc.)
Make or buy decisions
Fixation of the sale prices of products
Cost ascertainment is the process of determining costs on the basis of actual data. Hence, the computation of historical cost is cost ascertainment while the computation of future costs is cost estimation.
Both cost estimation and cost ascertainment are interrelated and are of immense use to the management. In case a concern has a sound costing system, the ascertained costs will greatly help the management in the process of estimation of rational accurate costs which are necessary for a variety of purposes stated above. Moreover, the ascertained cost may be compared with the pre-determined costs on a continuing basis and proper and timely steps be taken for controlling costs and maximizing profits.
Cost
The total money, time, and resources associated with a purchase or activity.
In production, research, retail, 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. 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.
More generalized in the field of economics, cost is a metric that is totaling up as a result of a process or as a differential for the result of a decision. Hence cost is the metric used in the standard modeling paradigm applied to economic processes.
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.
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. 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.
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 labor 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 (aKaldor-Hicks compensation), they are said to be external to the market pricing mechanism. 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.
Costing Methods
System of computing cost of production or of running a business, by allocating expenditure to various stages of production or to different operations of a firm.
Costing is important because it provides a quantified basis for defining poverty reduction strategies and programs, as well as for forecasting resource gaps and needs, and for mobilizing additional resources, either internally or externally.
While it is usually not possible to obtain reliable cost estimates for the long-term, costing is essential for coordinating the national budget and aid allocations with the prioritized development goals. The price tag and the financing plan of the programs or projects can only be ascertained meaningfully within a short-to-medium time horizon. There are several common costing methodologies, and they all have their usefulness in specific situations. However, no one single methodology is appropriate for every situation. All cost estimates must be interpreted with caution and scrutinized carefully. Nobody should be utterly confident of their precision. In short, there is no universally robust or best way of costing programs or projects. Since it is better to be broadly right than to be precisely wrong, cost estimates are sometimes best seen as orders of magnitude, expressed as a range rather than a single figure.
Cost accounting information is designed for managers. Since managers are taking decisions only for their ownorganization, there is no need for the information to be comparable to similar information from other organizations. Instead, the important criterion is that the information must be relevant for decisions that managers operating in a particular environment of business includingstrategy make. Cost accounting information is commonly used in financial accounting information, but first we are concentrating in its use by managers to take decisions. The accountants who handle the cost accounting information generate add value by providing good information to managers who are taking decisions. Among the better decisions, the better performance of your organization, regardless if it is a manufacturing company, a bank, a non-profit organization, a governmentagency, a school club or even a business school. The cost-accounting system is the result of decisions made by managers of an organization and the environment in which they make them.
The organizations and managers are most of the times interested in and worried for the costs. The control of the costs of the past, present and future is part of the job of all the managers in a company. In the companies that try to have profits, the control of costs affects directly to them. Knowing the costs of the products is essential fordecision-making regarding price and mix assignation of products and services.
Cost reporting
A cost report is a filmmaking term for a weekly report, compiled by the Production Accountant, detailing the costs to date, costs this week and estimate of the costs to complete the film.
Eresource ERP Cost Management feature provides visibility of cost at a single market place. With competition increasing the pressure on margins, your business needs accurate and detailed manufacturing cost reporting for effective business management.
Eresource ERP provides extensive cost information at several levels that helps the business owner to identify cost elements and reduce product cost. Product Manufacturing costing elements in eresource is formulated based of different parameters, including, routing, machines, production volumes, batch sizes, depreciation, labour, material cost, admin cost, selling cost, etc.
Further eresource ERP support multiple inventory valuation methods so you can choose the costing method that best reflects your company's business. For example, eresource ERP has features that let your company compare estimates and production costs for different work centers, machines, employees, and order quantities while monitoring overtime, indirect hours, subcontracted jobs and other costs.
Additionally, you can choose standard, LIFO (Last in first out), FIFO (First in first out), moving average unit, or lot costing, and costing methods can be assigned by item.
Eresource ERP provides extensive information about production cost at several levels, which gives you the visibility you need to identify cost drivers and reduce product costs.
Cost ascertainment
Cost estimation is the process of pre-determining the cost of a certain product job or order. Such pre-determination may be required for several purposes. Some of the purposes are as follows:
Budgeting
Measurement of performance efficiency
Preparation of financial statements (valuation of stocks etc.)
Make or buy decisions
Fixation of the sale prices of products
Cost ascertainment is the process of determining costs on the basis of actual data. Hence, the computation of historical cost is cost ascertainment while the computation of future costs is cost estimation.
Both cost estimation and cost ascertainment are interrelated and are of immense use to the management. In case a concern has a sound costing system, the ascertained costs will greatly help the management in the process of estimation of rational accurate costs which are necessary for a variety of purposes stated above. Moreover, the ascertained cost may be compared with the pre-determined costs on a continuing basis and proper and timely steps be taken for controlling costs and maximizing profits.