It is the monetary amount of the resources used and consumed in the production process to obtain goods and/or services. The price paid to acquire, produce, accomplish, or maintain anything.

The concept cost may be “accounting cost” or “economic cost”. Accounting costs are those referring to the amount paid by the company for the resources used to produce its goods, also called explicit costs. On the other hand, the economic cost is a cost that includes the accounting costs and the opportunity costs (implicit costs). costs can be classified following diverse criteria. The principal ones are;
1. According to its origin:

  • a. Raw material
  • b. Workforce
  • c. External service
  • d. Financial costs
  • e. Amortization costs

2. According to its imputation in the productive process

  • a. Direct costs
  • b. Indirect costs

3. According to the area where its consumed, they are costs of:

  • a. Production
  • b. Distribution
  • c. Administration
  • d. Financing

4. According to its relationship with production:

  • a. Fixed costs
  • b. Variable costs

From a business point of view, calculating costs is essential for a correct managing because it will determine the breakeven point (when revenues are equal to costs), after which a company can make a profit. This is why costs must be one of the principal variables when it comes to fixing good’s and service’s prices, although not the only one. There is a direct economic relation between the cost and the quantity of goods and services produced. This is known as marginal cost, which determines the rate of variation in costs depending on the variation in production.

Normally, this expression is usually referred to unitary increases in production, so that the marginal cost would be the variation in production costs when the produced quantity increases a unit.