Economic Cost Value

Definition

The sum of labor, materials, and overhead to produce an item.

Purpose

Economic cost value is used to determine the total cost of producing goods or services, providing a basis for pricing, budgeting, and financial analysis. It helps businesses understand their expenses and manage resources efficiently.

Examples of Use

• Calculating the economic cost value of manufacturing a product to set its selling price.
• Analyzing the cost efficiency of a construction project by summing labor, materials, and overhead.
• Preparing financial statements to reflect the true cost of operations.

Related Terms

• Direct Costs: Costs that can be directly attributed to the production of goods or services, such as raw materials and labor.
• Indirect Costs: Overhead costs that cannot be directly linked to a specific product, such as administrative expenses.
• Variable Costs: Costs that vary with production volume, such as materials and labor.
• Fixed Costs: Costs that remain constant regardless of production volume, such as rent and salaries.

Notes

• Accurate calculation of economic cost value is essential for profitability and competitive pricing.
• Cost management strategies can help reduce economic cost value and improve financial performance.