Accounting Equipment from CPA According to Steven Bragg, the gross cost of an item is the sum of all costs associated with its production or acquisition. In contrast, the net cost is the difference between the gross cost and financial advantages gained from the item’s manufacture or acquisition.
When a manufacturer obtains raw materials for a project, the total cost comprises the cost of the supplies as well as transportation, taxes, and any interest paid. If the materials are cheaper than those purchased from a previous supplier, the savings are removed from the gross cost to determine the net cost. The net cost reflects the purchase’s true economic loss. When a company purchases a piece of equipment, the initial sales price, shipment, and taxes comprise the gross cost. Bragg explains that if the corporation eventually sells the equipment for salvage, the gross cost is lowered by the salvage value to get the net cost.
When comparing two buying options, the difference between gross cost and net cost is crucial. One item may have a lower gross cost, but a greater net cost in some instances. This situation may occur, for instance, when the higher-priced item leads to greater efficiency and cost savings. According to Bragg, sometimes gross cost and net cost are equivalent because nothing offsets the initial expenses.
