Outlay Cost – Definition, Explanation, with Examples
Outlay Cost Definition
An outlay cost is an amount that a company expends on a particular project. Outlay costs for a new project can include the cost of setup, cost of production, and cost of asset (machinery, office equipment, etc) purchase. Outlay costs do not include any opportunity costs (also known as foregone costs).
Outlay costs include any expenses related to acquiring an asset, production costs, executing a business strategy, fees paid to outside parties, vendor costs, etc.
Outlay costs instantly reduce the earnings in cash accounting. Outlay costs are split across all the periods that the expense applies to and matched to related revenues n accrual accounting.
Understanding Outlay Cost with Examples
An outlay cost is any expenditure made to support an activity. Following are some detailed scenario-based examples of outlay costs for further understanding,
Example 1: Outlay cost for a research project – this can include salaries, lab equipment, and testing services-related costs.
Example 2: Outlay cost for a production company – this can include direct materials, indirect supplies, and direct labor-related costs.
Example 3: Outlay cost when someone finances a new house purchase – in this case, the lender will typically require to make an advance payment (deposit / principal payment) when purchasing. This cost is an example of an upfront outlay cost. An outlay cost can be an upfront expense incurred at the start of a project according to this example.
Outlay Cost Examples
Following listed the examples of outlay costs,
- Cost of Initial Setup of a Project
- Salaries/Wages of Staff
- Production Cost
- Asset Purchasing Cost (machinery, fixtures, furniture, office equipment)
- Fees paid to Outside Parties
- Vendor Service Costs
- Direct Materials
- Indirect Supplies
- Direct Labor Related Costs
- Advance Payment (Upfront Deposit / Principal Payments)
- Direct Cost – Definition, Explanation, Examples
- Indirect Cost – Definition, Explanation, Examples, Formula
- Opportunity Cost – Definition, Examples, and Formula
- Fixed Cost – Explanation, Formula, Calculation, and Examples
- Variable Cost – Explanation, Formula, Calculation, Examples
- Marginal Cost – Explanation, Formula, Curve, Examples