What is Consumed Cost?

A consumed cost is an expenditure for which the associated utility has been used. When a cost has been consumed, it is reclassified from being an asset to being an expense. This means that the cost is shifted from the balance sheet to the income statement. For example, a company purchases merchandise for $300. The $300 is initially classified as an inventory asset and recorded on the company's balance sheet. The company then sells the merchandise, at which point the cost has been consumed; the asset is now reclassified as an expense, and is shifted out of the balance sheet and onto the income statement, within the cost of goods sold classification.

Some types of costs are consumed so quickly that they never initially appear on the balance sheet. For example, if a business pays a salary to its marketing manager, this cost is immediately classified as a current period expense, and so is charged to expense as incurred.

Examples of Consumed Cost

Several examples of consumed costs are noted in the following bullet points:

Utility expenses. Examples are the gas used to heat an office, and the water used in its bathrooms.
Depreciation. Examples are the depreciation expense on computer equipment, and on office equipment.
Supplies consumed. Examples are the office supplies used in administrative work, and the cleaning materials used when maintaining the workplace.
Maintenance and repairs. Examples are the routine maintenance of the water sprinkler system for a business, and the repair of an organization’s roof.
Advertising expense. Examples are the cost of a one-time promotional campaign and of event sponsorships.
Training expenses. Examples are the cost of training sessions conducted to upskill employees, as well as the materials used during those sessions.
Rented facilities and equipment. Examples are the rent for a building or space, and the costs of renting equipment for a project.
Research and development expenses. Examples are the costs associated with prototypes or experiments that have already been performed, as well as the costs related to trials and testing.

Related AccountingTools Course

Cost Accounting Fundamentals

FAQs

How Does Consumed Cost Differ from Incurred Cost?

Consumed cost differs from incurred cost in the timing of recognition and resource usage. An incurred cost arises when an obligation to pay is created, such as when materials are purchased or services are received. A consumed cost, however, is recognized when the resource is actually used in operations, aligning expenses with the period in which benefits are realized.