The cost of a company is the money it costs to produce a product or provide a service, to then sell it and make a profit.

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The cost encompasses all the expenses involved in business activity, such as raw materials, worker salaries, labor and the amortization cost of goods and machinery that the company owns.

Cost price and selling price

That the cost is the minimum possible, is one of the factors that a company must always take into account so that profits are the maximum possible.

If a company sells its products or services at cost price, it will not lose money on its sales, but it will not earn anything either.

Being able to determine the production cost of the product or service it sells is important for a company, as it will help it establish the public selling price (which will be the sum of the cost + the profit it wants to have) taking into account, of course, other factors such as the target market, competition price, supply and demand function…

Types of costs

The cost can be divided into costs of two types:

• Variable costs: These are those that can vary over time since they depend on the level of production.

• Fixed costs: These are those that regardless of the level of production will not vary either in the short or medium term.

We hope this information is very useful to you ;)