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LECTURE NOTES

XI ENTREPRENEURSHIP

CODE-241506010113

TOPIC-BUSINESS FINANCE AND ARITHMETIC

SUB TOPIC- TYPES OF COST

1. Cost is an important element in the business activity of any form. In a manufacturing
concern, cost is to be incurred in producing a good and for a trading concern; cost is

to be incurred in acquiring a good.
 Unit cost can be defined as the cost incurred by a company to produce, store
and sell one unit of sale of particular product. It relates to variable cost.

 Unit of sale can be defined as the measure of the products sold. It is a unit

on the basis of which a customer is billed.

 Unit price is the price at which one unit of sale is sold.

 Gross profit is the excess of unit price over unit cost.
2. Expenditure, Expenses and Cost:

 Expenditure: This is the amount spent or liability incurred for acquiring assets,
goods or services. Expenditure may be further be categorized as follows:

(i) Capital expenditure
(ii) Revenue expenditure
(iii) Deferred revenue expenditure
 Expense: An expense is the value of the resource that was used up or was
necessary in order to earn the revenues during the time period. It may be in
the following forms:
(i) Cash payments such as salaries, wages, rent, etc.
(ii) An amount written off out of current assets.
(iii) Cost of goods sold
 Cost: It is a derived value of money consumed to produce a current or future

outcome. Costs incurred to start and run a business can be classified into two
board categories:
 Start-up cost: Start-up cost is the cost which is incurred initially to start a
business. It consists of expenses for (a) acquiring assets and (b) acquiring
initial raw material and other related items of initial expenses, till such time
the cash flow from the business can provide for these.