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.
Outlay Costs Explained
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.