Finance and accounting
Cost
What it takes to make and sell the product in a period.
Last reviewedWhat does Cost mean?
Cost is what a business uses up to make and sell its product in a period. Most costs can be classed as fixed (they do not change with volume within a normal range) or variable (they rise and fall with volume). Some are semi-variable or step costs. Spending on long-lived assets (capex) is not counted as cost all at once; it is spread over time as depreciation.
Where does it come up in case interview prep?
- Clean splits: being MECELesson in How to structure any problem
- Diagnosing a profit decline: the reference caseLesson in Profitability
- Profit and lossLesson
- Cost reduction and cost cuttingLesson
- Sustainability and decarbonizationLesson
- Healthcare and pharmaLesson
- Financial services P&L: banks and insurersLesson
- Organization and post-merger integrationLesson
Related terms
- Fixed costA cost that stays the same when volume changes, within a normal range.
- Variable costA cost that rises and falls with how much you make.
- Semi-variable costA cost with a fixed part and a part that moves with volume.
- Step costA cost that is flat over a range, then jumps.
- Capex (capital expenditure)Spending on long-lived assets such as machines and buildings.
- ProfitThe money left over after costs. Revenue minus cost.
- RevenueMoney earned from sales, before costs.
- Marginal costThe extra cost of making one more unit.