Click Here: All Types of Costs Index? -
(M) Controllable Costs
Controllable costs are those which can be controlled or regulated through observation by an executive and therefore they can be used for assessing the efficiency of the executive. Most of the costs are controllable.
Example: Inventory costs can be controlled at the shop level etc.
(N) Non Controllable Costs
The costs which cannot be subjected to administrative control and supervision are called non controllable costs.
Example: Costs due obsolesce and depreciation, capital costs etc.
(O) Historical Costs and Replacement Costs.
Historical cost or original costs of an asset refers to the original price paid by the management to purchase it in the past. Whereas replacement costs refers to the cost that a firm incurs to replace or acquire the same asset now. The distinction between the historical cost and the replacement cost result from the changes of prices over time. In conventional financial accounts, the value of an asset is shown at their historical costs but in decision-making the firm needs to adjust them to reflect price level changes.
Example: If a firm acquires a machine for $20,000 in the year 1990 and the same machine costs $40,000 now. The amount $20,000 is the historical cost and the amount $40,000 is the replacement cost.
(P) Shutdown Costs
The costs which a firm incurs when it temporarily stops its operations are called shutdown costs. These costs can be saved when the firm again start its operations. Shutdown costs include fixed costs, maintenance cost, layoff expenses etc.
(Q) Abandonment Costs
Abandonment costs are those costs which are incurred for the complete removal of the fixed asset from use. These may occur due to obsolesce or due to improvisation of the firm. Abandonment costs thus involve problem of disposal of the asset.
(R) Urget Costs and Postponable Costs
Urgent costs are those costs which have to be incurred compulsorily by the management in order to continue its operations. If urgent costs are not incurred in time the operational efficiency of the firm falls.
Example: Cost of material, labour, fuel etc
Postponable costs are those which if not incurred in time do not effect the operational efficiency of the firm. Examples are maintenance costs.
(S) Business Cost and Full Cost
Business costs include all the expenses incurred by the firm to carry out business activities. Costs Include all the payments and contractual obligations made by the firm together with the book cost of depreciation on plant and equipment.
Full costs include business costs, opportunity costs, and normal profits. Opportunity costs is the expected return/earnings from the next best use of the firms resources like capital, land and building, owners efforts and time. Normal profits is necessary minimum earning in addition to the opportunity costs, which a firm must receive to remain in its present occupation.
(T) Fixed Costs
Fixed costs are the costs that do not vary with the changes in output. In other words, fixed costs are those which are fixed in volume though there are variations in the output level.. If the time period in volume under consideration is long enough to make the adjustments in the capacity of the firm, the fixed costs also vary.
Examples: Expenditures on depreciation costs of administrative, staff, rent, land and buildings, taxes etc.
(U) Variable Costs
Variable Costs are those that are directly dependent on the output ie., they vary with the variation in the volume/level of output. Variable costs increase in output level but not necessarily in the same proportion. The proportionality between the variable costs and output depends upon the utilization of fixed facilities and resources during the production process.
Example: Cost of raw materials, expenditure on labour, running cost or maintenance costs of fixed assets such as fuel, repairs, routine maintenance expenditure.
(V) Total Cost, Average Cost and Marginal Cost
Total cost (TC) refers to the money value of the total resources/inputs required for the production of goods and services by the firm. In other words, it refers to the total outlays of money expenditure, both explicit and implicit, on the resources used to produce a given level output. Total cost includes both fixed and variable costs and is given by TC = VC + FC
Average Cost (AC) , refers to the cost per unit of output assuming that production of each unit incurs the same cost. It is statistical in nature and is not an actual cost. It is obtained by dividing Total Cost(TC) by Total Output(Q)
AC= TC/Q
Marginal costs(MC), refers to the additional costs that are incurred when there is an addition to the existing output level of goods ans services. In other words, it is the addition to the Total Cost(TC) on account of producing additional units.
(W) Short Run Cost and Long Run Cost
Both short run and long run costs are related to fixed and variable costs and are often used in economic analysis.
Short Run Cost: These costs are which vary with the variation in the output with size of the firm as same. Short run costs are same as variable costs. Broadly, short run costs are associated with variable inputs in the utilization of fixed plant or other requirements.
Long Run Cost: These costs are which incurred on the fixed assets like land and building, plant and machinery etc., Long run costs are same as fixed costs. Usually, long run costs are associated with variations in size and kind of plant.
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