Introduction to cost

This curve cuts the vertical axis at a point above the origin and rises continuously from left to right. Research Cost Research costs are incurred to discover a new product or to improve an existing product, method, or process.

In order to simplify the cost analysis, certain assumptions are made. Expired Cost When the cost is fully consumed and no future monetary value could be measured, it is called expired cost. All these expenses are incremental costs. The dotted portions of these SAC curves are of no consideration during the long run because the firm would change the scale of plant rather than operate on them.

What is the optimum level of operation of any firm at optimum level the cost of the firm is generally reaches its minimum level? When an increase in the production of one product results in an increase in the output of another product, such products are joint products and their costs are joint costs.

types of cost

Cost of production provides the floor to pricing. They are also called imputed costs.

Introduction to cost accounting lecture notes

When managers are required to collect data to prepare a cost analysis, they will have a deeper awareness of specific elements, such as required labor and overhead. Production Costs: The total costs of production of a firm are divided into total variable costs and total fixed costs. Contribution Margin Contribution margin is the difference between sale price and variable cost. Similarly, if the firm decides to increase its output to OQ3 to meet further rise in demand technical progress may have advanced to such a level that it installs the plant with the LAC3 curve. Since resources are scarce, they cannot be used to produce all things simultaneously. They are the monetary payments made by the entrepreneur for purchasing or hiring the services of various productive factors which do not belong to him. Firms face different competitive situations. They involve forecasting for control of expenses, appraisal of capital expenditure decisions on new projects as well as expansion programmes and profit-loss projections through proper costing under assumed cost conditions.

When an industry expands, the increase in the demand for factors like labour, capital, equipment, raw materials, power, etc. This activity of production goes beyond manufacturing i. For example, when gas is produced from coal, coke and other products also emerge automatically.

Managerial Costs: In modern firms, for each plant there is a corresponding managerial set-up for its smooth operation. A firm or business combines inputs of labor, capital, land, and raw or finished component materials to produce outputs.

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Cost Accounting