how outlay costs work
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 special considerationsoutlay 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 foregone profits or benefits such costs are known as opportunity costs and are hidden but an important component of a business s profitability outlay cost vs total costoutlay costs sometimes referred to as explicit costs are direct expenses paid these expenses can be one time such as repair bills or recurring e g subscription services direct costs can also be predictable e g rent or vary such as utility bills meanwhile the total cost is both the outlay cost and opportunity cost so while outlay costs include direct payment total costs include any indirect losses or missed benefits that is opportunity costs are those benefits a business misses out on by choosing one option over another example of an outlay costfor 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 as well as the 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 then there are the implied costs of choosing one widget press over another in addition the other opportunity costs include choosing the widget press over another type of equipment or method 