Scribd Logo
Upload

Welcome to Scribd!

  • 163 views

    Cost Analysis: MEANING: The Term Cost' Means Different

    Uploaded by

    Prashanth Kumar
    This document discusses cost analysis concepts. It defines cost as the expense incurred to produce a commodity. Costs are classified in several ways including: variable vs fixed, depending on how costs change with output; explicit vs implicit, depending on whether costs are visible; and opportunity cost, which is the value of the next best alternative forgone. Real cost considers the effort and sacrifice of production while money cost is the total monetary expenditure. Understanding different cost concepts is important for business decision making and solving managerial problems.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd

    Cost Analysis: MEANING: The Term Cost' Means Different

    Uploaded by

    Prashanth Kumar
    163 views15 pages
    This document discusses cost analysis concepts. It defines cost as the expense incurred to produce a commodity. Costs are classified in several ways including: variable vs fixed, depending on how costs change with output; explicit vs implicit, depending on whether costs are visible; and opportunity cost, which is the value of the next best alternative forgone. Real cost considers the effort and sacrifice of production while money cost is the total monetary expenditure. Understanding different cost concepts is important for business decision making and solving managerial problems.

    Original Title

    Cost Analysis

    Copyright

    © © All Rights Reserved

    Available Formats

    PPTX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    This document discusses cost analysis concepts. It defines cost as the expense incurred to produce a commodity. Costs are classified in several ways including: variable vs fixed, depending on how costs change with output; explicit vs implicit, depending on whether costs are visible; and opportunity cost, which is the value of the next best alternative forgone. Real cost considers the effort and sacrifice of production while money cost is the total monetary expenditure. Understanding different cost concepts is important for business decision making and solving managerial problems.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    163 views15 pages

    Cost Analysis: MEANING: The Term Cost' Means Different

    Uploaded by

    Prashanth Kumar
    This document discusses cost analysis concepts. It defines cost as the expense incurred to produce a commodity. Costs are classified in several ways including: variable vs fixed, depending on how costs change with output; explicit vs implicit, depending on whether costs are visible; and opportunity cost, which is the value of the next best alternative forgone. Real cost considers the effort and sacrifice of production while money cost is the total monetary expenditure. Understanding different cost concepts is important for business decision making and solving managerial problems.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 15

    COST ANALYSIS

    MEANING: The term Cost means different


    things to different persons.

    Business Executives: Very important in
    determination of price.
    Managerial Economists: Cost analysis has a
    specific purpose of solving managerial problems.

    COST IS THE EXPENSE INCURRED IN
    PRODUCING A COMMODITY
    Meaning Contd..
    The supply of the product is governed by the cost
    of productions of a product.
    Cost of producing a unit is determined by the
    price of factor inputs.
    A business manager can control the cost of
    production, but not the price prevailing in the
    market.
    COST CLASSIFICATION
    Cost concepts differ because of differences in view point.
    Different combinations of cost ingredients are important
    for various kinds of management problems.
    When an entrepreneur decides to produce a commodity,
    he has to pay prices for factors of production (i.e. Wages
    for labourers, money for raw-materials, fuel and power,
    rent for factory building and so on).
    Kinds of cost incurred depends on business decisions
    taken by managers.

    Hence it is very important to understand the cost analysis
    and know various cost concepts.
    DIFFERENT COST CONCEPTS
    Real cost
    Money cost (Explicit & Implicit)
    Opportunity cost
    Variable and Fixed costs
    Total cost and marginal costs

    REAL COST
    Real cost includes the trouble, commotion and
    sacrifices involved in producing a product. The
    efforts and sacrifice of the factors or its owners is
    the real cost.

    The effort and sacrifice implicit in real cost of
    production are purely subjective and beyond
    accurate measurement.
    MONEY COST
    Total expenditure incurred by a firm on the various items of
    production (wages for labourers, prices of raw-materials, fuel,
    rent for buildings, power and light etc.)
    Further, the Total cost is divided into to Explicit and Implicit
    cost

    Explicit Cost: Cost incurred on factors of production not
    belonging to the firm (E.g. Wages, material, license fee,
    insurance premium, depreciation charges etc.)

    Implicit Cost: Cost which are hidden and do not take the
    form of a cash or appear in the accounting records of the firm.
    (E.g. Employers having own building, capital, his service
    rendered for production etc.)
    OPPORTUNITY COST
    It is the cost of producing any commodity which is the
    next best alternative good that is sacrificed. Hence, the
    opportunity cost may also be called alternative cost.
    E.G. A farmer who is producing paddy can also produce
    wheat with the same factors of production.
    Therefore, the opportunity cost of one quintal of paddy is
    the amount of wheat given up.

    The opportunity cost of any commodity is only the next
    best alternative foregone. The next best alternative could
    be produced with the same value of the factors, which
    are more or less the same.
    VARIABLE and FIXED COST.
    Variable Cost: The cost incurred on factor
    inputs (Labour, raw materials etc.) that can be
    readily varied to increase or decrease output in
    the short run.
    Fixed Cost: The cost incurred on factor inputs
    (Capital equipment, factor buildings and top
    management staff etc.) that cannot be readily
    varied with the change in output in the short
    run.
    TOTAL COST and MARGINAL COST
    Total cost: The actual cost that must be
    incurred to produce a given quantity of output.

    Marginal Cost: The marginal cost is the
    addition to the total cost caused by producing
    one more unit of the output.
    SHORT RUN TOTAL COST SCHEDULE
    OF A FIRM

    You might also like