DEFINITION of 'Underlying Cost'

Any cost that can be expected within the following budget period. Underlying costs are costs that the company knows it will have to pay out throughout the budget period. Examples would include items such as rent/lease/mortgage, depreciation, utilities, etc. In the aggregate, sometimes the underlying cost can refer to the basic cost of something excluding unusual costs that occur infrequently.

BREAKING DOWN 'Underlying Cost'

For example, it might cost $1 to produce a widget but an unusal plant shutdown results in costs of $2 per widget in the period. Excluding the unusual costs, the underyling cost would be $1, which is also what the company expects the cost to be going forward.

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