PRESENTATION ON

TYPES OF COST

BY
Meyyappan. C
Poornimaa. N
Rakciya. P
Sudhakar. R
Gokul. K
 COST
Monetary valuation of Effort, Material, Resources, Time and Utility
consumed, Risks incurred and Opportunity forgone in the
production and delivery of goods and services.
 TYPES OF COST
Opportunity cost and Actual cost
Explicit and Implicit cost
Direct and Indirect cost
Historical and Replacement cost
Controllable and Uncontrollable costs
Sunk and Shut-down costs
Fixed cost and Variable cost
Total, Average, and Marginal cost
 OPPORTUNITY COST AND ACTUAL COST
Opportunity cost
Also known as alternative cost, is the value of the choice of a best
alternative cost while making a decision.
The loss of other alternatives when one alternative
is chosen.

Actual cost
An actual amount paid or incurred. Actual costs includes direct labor,
direct material.
 EXPLICIT AND IMPLICIT COST

Expenditure or Explicit Costs

Costs which are paid by the owners which consist of wages and
salaries paid; payments for raw materials, interest on borrowed
capital funds, rent on hired land and the taxes paid to the
Government.

Implicit cost
Refers to the cost of use of the self owned resources of organization
that are used in production
 DIRECT AND INDIRECT COST

Direct Cost
It is one which can be identified easily and indisputably with a unit of
operation, i.e., costing unit/cost centre.
Example:The salary of a Divisional Manager, when a Division is a
costing unit, will be a direct cost.
Indirect cost:
Indirect cost are those costs which are not directly accountable to
specific cost object or not directly related to production
Examples: insurance, mentainence ,telecom, .etc
 HISTORICAL AND REPLACEMENT COST
Historical Costs
The cost of an asset or the price originally paid for it.

Replacement cost
The price that would have to be paid currently for acquiring the same
plant.
 CONTROLLABLE AND UNCONTROLLABLE COSTS
Controllable Cost
It is one which is reasonably subject to regulation by the executive
with whose responsibility that cost is being identified.
Example:Wastage of raw material.
Uncontrollable Cost
It is that cost which is uncontrollable at one level of responsibility may
be regarded as controllable at some other higher level.
Example:securites in a company.
 SUNK AND SHUT-DOWN COSTS
Sunk cost
Is one which is not affected or altered by a change in the level or
nature of business activity. It will remain the same whatever the level
of activity may be.
Shutdown cost
Are these costs which would be incurred in the event of suspension of
the plant operation and which would have been saved if the
operations had continued, e.g., for storing exposed property.
 FIXED AND VARIABLE COSTS
Fixed cost
Expenses which will not change based on the number of units
produced
Example:rent,salary
Variable cost
Variable Costs vary in total in direct proportion to changes in volume.
Example:sales commission,raw material.
 TOTAL COST
Total cost
It is the cost refers to the total expenses
incurred in reaching a particular level of output
TC = TVC + TFC
Total variable cost (TVC)
All costs associated with the variable input.
Total fixed cost (TFC)
All costs associated with the fixed input.
 AVERAGE COST

Average variable cost- variable cost per unit of output:

AVC = TVC/ Output

Average fixed cost- fixed cost per unit of output:

AFC = TFC/ Output
Average Cost
Average total cost per unit of output:

AC =AFC + AVC
AC = TC/ Output
 MARGINAL COST
The additional cost incurred from producing an additional unit of
output:

MC = (change) TC/(change)output
CALCULATIONS
THANK YOU