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Cost

society Maturity 11-13 Next article →

Cost is the value of money used to make something. Once this money is spent, it is gone. You cannot use it for anything else. In business, cost is the money used to get a new item. This is called an acquisition cost. It includes the price paid to the maker. It may also include extra costs to complete the deal.

There are many ways to group these costs. Accounting costs are the prices on invoices. They cover supplies, services, and equipment. Businesses also pay for labor, which is the work people do. Manufacturing costs are directly tied to making a product. These include raw materials and worker pay. Non-manufacturing costs are different. They include things like advertising or sales staff pay.

Sometimes, a cost is not about money you spend. This is called an opportunity cost. It is the value of the best thing you did not choose. If you use resources for one task, you cannot use them for another. This represents the opportunities you gave up. In economics, people often use the term cost to mean this. It helps people understand the result of a big decision.

Costs can also affect people in different ways. A private cost is what a buyer pays a seller. However, some actions create external costs. These are costs that other people must pay. For example, making a car might cause air pollution. The driver and maker do not pay for this damage. This is an externality that affects society. Social cost is the sum of private and external costs.

Planners use cost estimates to build business plans. They want to see if benefits will cover all costs. This is called a cost-benefit analysis. Sometimes, people underestimate costs. This leads to cost overruns during a project. Some businesses use cost-plus pricing. This means the price is the cost plus a profit margin. This helps a company stay in business.

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