ABSTRACT
Cost in its broadest sense means sacrifice, typically a sacrifice of purchasing power, but it is important to think of the wider meaning because it is possible to incur costs without any transfer of cash taking place. Business decisions revolve around private costs which include all outlays made by the firm on materials, labour, land, capital, energy and so on. ‘Direct’ material and labour costs consist of the expenditure on inputs that can be assigned to specific physical units of output. Direct expenses are again chargeable to specific units and include lubricants which are identified with a particular operation rather than general maintenance costs. Economies from massed reserves arise from the need for proportionately fewer standby facilities when several similar machines are being used. One of the problems in calculating material costs is that frequently material is drawn from stock rather than purchased directly for a particular job.
