This is my homework post for Steemit Learning Challenge Season 21 Week 1 assignment of Professor @yolvijrm’s class, Introduction to Cost.

^{The accounting illustration is from pixabay.com}

Task 1 - What is cost and how important is it for entrepreneurs?

In the world of business and accounting, cost refers to all expenses or resources used to acquire, produce, or sell a product or service. The term cost includes everything that is spent on the process of producing, purchasing, and providing goods or services. This includes the cost of raw materials, labor, and equipment involved in producing the product or service. For example, a business that produces shoes, then included in the cost are: the cost of raw materials for shoes, labor salaries, equipment and machinery for making shoes.

Costs can be divided into several categories, including:

• Direct Costs, which are costs that are directly related to the production of certain goods or services, for example raw materials and direct labor.
• Indirect Costs, which are costs that are not directly involved in the production process but support operations, such as electricity and maintenance costs.
• Fixed Costs, which are costs that do not change with the level of production, such as building rent and fixed salaries.
• Variable Costs, which are costs that change with the level of production, including raw materials and overtime salaries.
• Sunk Cost, which are all costs that have been used and cannot be recovered, such as research costs that have been exhausted.

Costs are directly related to the process of creating goods or services, so costs have a very important position in business activities. Good cost management will determine many things in business activities: financial effectiveness, production costs, competitive selling prices, and so on, which in turn will greatly determine the sustainability and prospects of the business being run.

Task 2 - Establish the difference between costs and expenses, giving examples of this through a real case.

The Difference Between Costs And Expenses

If costs are related to the process of producing goods or services, expenses are related to other needs that support these production activities, for example all the money spent on electricity and drinking water, as well as administrative staff who are not directly related to the production of goods.

The following table compares costs and expenses from various angles of observation.

Real Case Example

The closest real case example to the Steemit community is probably the activities of the Witnesses. Let's take @steemchiller, one of the top Witnesses (and perhaps one of the closest to the Steem community), as an example. If his witnessing can be considered as a business, by providing - among other things - security services to the Steem blockchain, then those that include as costs are:

• The cost of the computer and its peripherals, with which he will run the Steem software and with which he will carry out his witnessing activities.
• Labor costs. It is possible that a witness like him will need several people to assist him in certain works that are directly related to the witness program activities.
• Research costs. In his activities as a witness, Steemchiller must also do research once in a while, especially related to programming, because I think he must be a good programmer.

While those that include as expenses are:

• Expenses for electricity.
• Expenses for drinking water.
• Employee lunch (if Steemchiller has employees and is kind enough to provide them with lunch).
• Office rent, in case Steemchiller does not have enough space in his house or decides to rent a place instead of using the house as an office.

Task 3 - What are the benefits of performing a good cost determination?

Good costing will of course have many positive impacts on the business. Among them are:

• Improving the efficiency of capital utilization. This is achieved by reducing or suppressing costs that can be reduced or even eliminated.
• Increase the effective use of capital. With good costing, capital can be utilized more effectively so that it will also lead to a reduction in production costs.
• By saving the use of capital that starts with good costing, the selling price can be set at a level that is more competitive with competitors.
• As a basis for positive and healthy decision-making. That is, good costing helps management understand the costs involved in each stage of operations. This information is very useful when making decisions regarding things like product pricing, production efficiency, budget allocation, and even future investments.
• Profit optimization. Good costing leads to efficient and effective use of capital, which in turn reduces production costs, meaning an opportunity for optimal profits.

Task 4 - How do you determine the costs of your business? If you are not an entrepreneur, how would you do it?

I am running a small business with a frien. The things we do regarding costing were:

1. Identify the costs that will be incurred by categorizing them into:
   • fixed costs, which are costs that will not change and do not depend on the amount of production, e.g. rent and salaries.
   • non-fixed costs, which are costs that change and are determined by the level of production, e.g. salaries for overtime or additional employees, raw material costs.
   • unforeseen costs, which are costs that may arise unplanned.
2. Detail and separate between direct costs (those directly related to production activities, e.g. salaries of production workers, raw materials, production equipment) and indirect costs (those not directly related to production, e.g. electricity and water costs).
3. Market cost research. This is intended to obtain an overview of costs and prices including raw material costs from various suppliers so that more profitable decisions can be made.
4. Market price research for similar products. This will give an idea of the maximum cost that can be incurred if you want to be able to sell at at least the same price.
5. Conduct bookkeeping as thoroughly as possible. This can be done using spreadsheet applications such as Microsoft Excel or various financial and accounting applications that are easily available.

Thanks

Thanks Professor @yolvijrm for the lesson. I invite @rayfa, @anroja, @rashid001.

Pictures Sources

• The editorial picture was created by me.
• Unless otherwise stated, all another pictures were screenshoots and were edited with Adobe Photoshop 2021.

Sources and Reading Suggestion

• https://www.dbs.id/digibank/id/id/articles/apa-perbedaan-cost-dan-expense
• https://www.thebalancemoney.com/cost-vs-expense-what-is-the-difference-3974582
• https://ortax.org/forums/discussion/perbedaan-antara-cost-dengan-expense
• https://akuntansi.uma.ac.id/2021/05/31/the-differences-between-cost-and-expense/
• https://aspireapp.com/id/blog/differences-between-costs-and-expenses
• https://invyce.com/difference-between-cost-and-expenses/
• https://www.anderson.ucla.edu/faculty/michael.williams/slide2.pdf

---

My Introductory Post | Artikel Perkenalan Saya.

---

^{Picture created by @aneukpineung78}

Thanks for stopping by.