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There are various types of costs and it is important to make distinction between them.

The most widely accepted concept of cost is the money cost of production. It means the aggregate money expenditure incurred by a firm to produce a commodity. It is the total of various sums of money paid to the factors of production for the services rendered by them in production process.

The money cost of production includes money expenditure of a firm on wages and salaries paid to labour; payments incurred on machinery and equipment; payments for raw materials, power, light, fuel, transportation, and advertisement; payments for rent and insurance; payments to government and local bodies by way of taxes.

Every producer is interested only in the money cost of production. Money costs are measurable, producers use the concept of money cost to estimate the profitability of production.

Accounting costs are known as explicit costs while economic costs are known as implicit costs. Money costs include accounting costs and economic cost both. Accounting costs refer to expenses which are recorded in the books of accounts. They are actually paid out outlays. Economic costs on the other hand take into consideration, besides, actual outflows, imputed costs, i.e, imputed costs of owner-owned resources.

For example, owner's premises used as office, owner's work as a manager, capital supplied by him etc.

In shorts, total money costs = total explicit costs + total implicit costs.

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