What is an 'Outlay Cost'

An outlay cost is a cost incurred in order to execute a strategy or acquire an asset. Outlay costs are also paid to vendors to acquire goods such as inventory or services like consulting or software design. They are concrete expenses which are actually incurred in order to achieve a goal. Outlay costs are easy to recognize and measure because they have actually been paid to outside vendors, as opposed to opportunity costs which are not actually incurred and paid to outside parties by the company. For corporations, outlay costs for new projects include start-up, production, and asset acquisition costs. They can also include hiring costs for strategies or projects that require an addition to the workforce in order to be carried out.

BREAKING DOWN 'Outlay Cost'

Outlay costs include the expenses paid by a business in order to manufacture a product or provide a service, and also include fees paid to outside parties to acquire assets or services. In cash accounting, outlay costs immediately reduce earnings. In accrual accounting, outlay costs are split across all the periods that the expense applies to and matched to related revenues. Outlay costs do not include forgone profits or benefits; such costs are known as "opportunity costs" and are a hidden, but important, component of a business's profitability.

Example of an Outlay Cost

For example, if XYZ Manufacturing Company wants to purchase a new widget press they will not only have to pay for the widget press, but for the fees associated with transporting the widget press to their facility, costs for getting the widget press up and running and possibly expenses for training workers to use the new widget press. All of these are outlay costs associated with acquiring a new widget press.

RELATED TERMS
  1. Construction Interest Expense

    Construction interest expense is interest that accumulates on ...
  2. Hard Asset

    A hard asset is a tangible and physical item or object of worth ...
  3. Average Cost Flow Assumption

    Average cost flow assumption calculation used by companies to ...
  4. Fixed Cost

    A fixed cost is an expense that remains the same regardless of ...
  5. Cost of Revenue

    The cost of revenue is the total cost of manufacturing and delivering ...
  6. Due To Account

    A due to account is a liability account typically found inside ...
Related Articles
  1. Investing

    Buying Stocks When the Price Goes Down: A Mistake?

    Averaging down is a trumpeted strategy that has merit but can amount to throwing money away when used carelessly.
  2. Small Business

    U.S. Small Business Optimism Ticks Higher

    NFIB Index edges higher but remains below long term average
  3. Trading

    What is a Bull Call Spread?

    A bull call spread is an option strategy that involves the purchase of a call option and the simultaneous sale of another option.
  4. Trading

    What is a Bear Put Spread?

    A bear put spread entails the purchase of a put option and the simultaneous sale of another put with the same expiration but a lower strike price.
  5. Managing Wealth

    Getting a Private Jet: Buy or Lease?

    Ready to join the elite jet set? There are a number of ways to make it happen.
  6. Trading

    Understanding Bull Spread Option Strategies

    Bull spread option strategies, such as a bull call spread strategy, are hedging strategies for traders to take a bullish view while reducing risk.
  7. Investing

    The Costs of Investing

    text
  8. Small Business

    Capital Expenditure Versus Revenue Expenditure

    Capital expenditures and revenue expenses have significant differences. Here's the difference between the two.
  9. Small Business

    Business Startup Costs: It's in the Details

    Don't overlook the details when starting up a business; it's the small expenses that have the potential to make or break a great idea.
RELATED FAQS
  1. What are the types of costs in cost accounting?

    Cost accounting aids in decision-making by helping a company's management evaluate its costs. There are various types of ... Read Answer >>
  2. How does product pricing affect gross profit and EBITDA?

    Learn how changes in product pricing can affect a company's revenue and profitability, including examples of this effect ... Read Answer >>
  3. How is the economic order quantity model used in inventory management?

    Understand what types of costs make up total inventory costs, and learn how the economic order quantity model is used to ... Read Answer >>
Trading Center