Out-of-pocket cost
Out-of-pocket cost: a cost that requires an actual current or future cash payment, unlike a sunk cost already spent or a non-cash cost such as depreciation.
See it move
A delivery firm considers running its van for an extra evening shift. The shift needs €40 of fuel and €65 of driver overtime, both genuine new cash outlays, giving an out-of-pocket cost of €105. The van's monthly depreciation charge of €3,000 is recorded regardless of the shift and is a non-cash allocation of a cost committed long ago, so it plays no part in the decision.
Check yourself
A workshop is costing a rush job. The job requires direct materials to be purchased for €2,400, casual labour hired specifically for the job and paid in cash for €1,800, a depreciation charge of €500 allocated to the job from equipment bought two years ago, and an absorbed fixed-overhead charge of €300 based on a rate set before the job was ever considered. What is the out-of-pocket cost of taking on the job?