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What are tangible costs and intangible costs?

A:

Quick Answer

According to Investopedia, a tangible cost is a quantifiable cost related to an identified assist or source. An intangible cost is an unquantifiable cost related to an identified source.

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Full Answer

The sources of tangible costs, according to the Houston Chronicle, are receipts, contracts or policies. These documents consume a fair amount of an accountant's time. According to Investopedia, tangible costs are expenses such as purchases, employee wages and equipment rental.

The Houston Chronicle notes that accountants assign tangible costs to categories such as cost of goods sold or overhead costs. Tangible costs can produce benefits for a company such as the manufacturing of the company's product. Safety training and environmental controls have benefits that are less easily measured, but affect the company's bottom line. Intangible costs are not easily measured. A new program or policy implemented by management that works at one location and not another has costs associated with it. A new system designed to increase productivity could also work well at one company's facility and adversely affect another facility's productivity. These circumstances are not foreseen and determined to be intangible.

Intangible costs should either be absorbed or eliminated by management. The decision is based on the best cost estimate presented by intangible cost management.

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