Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Abatement Cost

What it is:

An abatement cost refers to the cost associated with the voluntary or compulsory removal of an undesirable result of a production process.

How it works (Example):

In many instances, companies produce goods or services that directly or indirectly result in a byproduct that may be medically or environmentally dangerous. This can be an indirect result of a cost-cutting measure to increase productive efficiency. Should governmental or regulatory authorities determine that a production process has hazardous side effects for the community at large, these authorities may require a company to eliminate or, at least reduce the incidence thereof. The cost to a company associated with reengineering the production process (whatever that may entail) for this purpose would be the abatement cost. For instance, if a company must begin using a more expensive raw material in order to reduce the amount of mercury released into the local environment, the additional cost would be the abatement cost.

Why it Matters:

Abatement costs are often an indirect outcome of government-imposed regulations intended to benefit the greater community and environment. To this end, they represent, albeit by necessity, a source of economic inefficiency similar to a tax.

Related Terms View All
  • Auction Market
    Though most of the trading is done via computer, auction markets can also be operated via...
  • Best Execution
    Let's assume you place an order to buy 100 shares of Company XYZ stock. The current quote...
  • Book-Entry Savings Bond
    Savings bonds are bonds issued by the U.S. government at face values ranging from $50 to...
  • Break-Even Point
    The basic idea behind break-even point is to calculate the point at which revenues begin...
  • Calendar Year
    If Company XYZ starts its fiscal year on January 1 and ends its fiscal year on December...