Physical Flow Costs

In accounting and economics, physical flow costs are the direct costs associated with the production and delivery of a good or service. These costs include raw materials, labor, and other expenses incurred in the production process. Physical flow costs can be contrasted with economic flow costs, which include indirect costs such as marketing and administration.

Physical flow costs are an important consideration in the pricing of goods and services. Companies must account for these costs when setting prices in order to ensure that they are covering all of their expenses and making a profit. In some cases, companies may pass on some or all of their physical flow costs to consumers through higher prices. However, competition in the marketplace may limit their ability to do this.

When analyzing the financial performance of a company, it is important to consider both physical flow costs and economic flow costs. Together, these two types of costs can give you a complete picture of a company’s expenses and profitability.